With the increase cost of living (inflation) and other factors, one in five Americans has no retirement savings and over half of them consider that they have not enough for retirement. Based on our experience, we consider that the vast majority of Americans is not ready for retirement as a) cost of healthcare and homecare stays high, b) cost of living is also relatively high and c) many investors overestimate future returns on their portfolios (return on investment adjusted by inflation rate provides a better idea of future funds – keep in mind that certain categories might grow faster than normal inflation – healthcare, education, etc.).

You should focus on the controllable factors (i.e. lifestyle, saving, retirement objectives, length of employment or earnings, investment strategy, etc.) that might impact your retirement and start taking action today.

  • If you are an employee, you might benefit from the retirement plan established by your employer. If the employer does not have a retirement plan as not required due to the size or other factors (note that more States are requiring to offer retirement plans even for micro and small businesses with employees), you can still contribute to IRA.
  • If you are a solo entrepreneur (self-employed), then, you might contribute to the 401k, SEP-IRA or Defined Benefit Plan.
  • If you are a business owner with employees, then similar options as solo entrepreneur are available as far as you do not discriminate employees. You might require a certain number of hours or certain period as employees of the company.

Regarding the type of retirement plan, there are several selections to be made:

  • Qualified (i.e. 401k, SEP, Simple IRA) vs Non qualified (i.e. Defined Benefit Plan) – Each plan has different advantages, disadvantages, limitations, and taxation.
    • The qualified plans are contributions from the employee and potentially employer (matching, profit sharing, etc.) were the investment strategy is up to the employee and there are non discriminatory rules in place
    • The non qualified plan might have some flexibility (i.e. higher paid employees and higher contribution thresholds) but there is usually a delay in the tax benefits plus a risk of forfeiture (claims of creditors)
  • Traditional (pre-tax) and Roth (after tax) – The main difference is that the contribution in the Traditional is tax deductible when contributed and the taxes will be paid at the distribution, while the Roth pays taxes at contribution but grows tax free and no taxes due on distribution if met certain requirements.
    • For the Traditional vs Roth IRA (even Roth conversions) some considerations should be:
      • Do I meet the income limits for Roth IRA? Note that there is no income limits for Roth 401k / 403b
      • Am I going to be in a lower tax bracket when I retire?
      • Will I have enough money at retirement? Roth do not have requirement minimum distributions
      • Would I rather pay taxes today so I do not have to pay in the future? If I pay taxes today, I will not spend that additional money now.

As you can imagine retirement is an extremely complicated topic subject to multiple variables, so a discussion with several professionals, like a financial adviser, a CPA and an estate attorney, might be beneficial to reach your retirement objectives. Reach out to our team to discuss your personal case and find viable options to secure your future.

 

Link AARP – New AARP Survey: 1 in 5 Americans Ages 50+ Have No Retirement Savings and Over Half Worry They Will Not Have Enough to Last in Retirement

Link CNBC – 53% of Americans surveyed feel they are behind on retirement planning and savings, CNBC poll finds

Link IRS – Types of retirement plans