In America, we tend to want the best of everything. But when it comes to 401(k) plans and IRA’s, we often settle for much less.
Case in point: MetLife recently published a report that 401(k) plan sponsors are struggling to help workers translate the balance in their retirement accounts to income. As a result, they are “missing opportunities to help their workers manage their ‘nest eggs’ long term.”
According to MetLife’s “Qualified Plan Barometer”, which is a study of Fortune 1000 defined benefit and defined contributions plan sponsors, 1/3 of plan sponsors described their retirement benefits philosophy as supporting employees’ efforts to “create retirement income for the future” and 2/3 say that retirement income is an important objective of their retirement plan(s). Yet, many continue to skew their plan goals toward savings, rather than income.
The entire concept of retirement plans such as IRAs and 401(k)s is to provide a stronger income stream for you upon retirement.
It is imperative for you to determine as early as possible how much income you’ll need to maintain your lifestyle. Most people never take the time to do this for a variety of reasons. “I don’t know what I’ll need” or “I know I need more. What else is there?” Some retirees take their social security they get and withdraw from personal savings/retirement accounts any ‘shortfall’ they want to cover…without understanding what the income number is for them to be able to maintain lifestyle long term.
Of course, there’s always the option of knocking off your spouse and collecting the life insurance, but that’s not really a good plan. Unless you don’t mind the idea of the state providing you bologna sandwiches, a mattress and rather confined lodging.
Here’s the point: You never want to outlive your money! If we do, the responsibility falls on our children and friends to meet our needs and no one wants that. So we come up with the best plan we can and act on it.
Let me tell you a tale of two brothers. My two brothers…
First, there is Jim, a soon-to-be retired teacher/coach with a wife who is employed by the town they live in. They have had a plan since they got married 35 years ago. They are on target to have $1,000,000 in their retirement accounts at the time of retirement with a plan to live on $100,000 per year. This is a workable plan for them as they have calculated pensions, social security and withdrawals from their retirement accounts. They are, and always have been, very conservative with their investments and have never strayed off path with a clear focus on $100,000 per year until death.
My brother, Anthony, is a different story. He is a retired school principal and receives approximately $75,000 per year in his pension. He will start collecting about $1,700 per month in social security shortly as well. But…there is a striking different between my brothers.
Anthony has a self-directed IRA which allows him to invest in real estate, mortgages, and basically everything except collectables or life insurance as long as he is not dealing with prohibited people like his accountant and/or self-dealing. He recently bought a 50% interest in 13 free and clear homes around Atlanta, GA. This will provide him with additional income of approximately $4,000 per month. He is in a very intelligent position because instead of saving his retirement money or investing in conservative low-yield CDs or the stock market, he invested in cash flow properties.
These homes will provide him an additional income stream to live comfortably. With more money than he spends each month coming in, he can allow it to accumulate so he can buy more houses and obtain more cash flow. In addition to cash flow, he also has a huge upside in these properties upon the decision to sell. He is able to take rides on his Harley while his money is working for him.
While Anthony’s money is piling up in his recent retirement account, Jim’s is being depleted because he will be withdrawing from his savings each year. All the while, Anthony’s investments that produce cash flow can be saved or accumulated to buy more cash flow when the opportunity arises.
Which program is better for you?
Clearly, having a self-directed retirement account affords you opportunities to buy investments that produce monthly cash flow. Take advantage of unique situations that are happening right now. Opportunities that you can see and touch and know have what it takes to work long term…unlike stocks, mutual funds, gold, CDs, or even bonds which pay returns that rarely let you maintain lifestyle – let alone outpace inflation.
Retirement is about not having to work. Have the money that you worked for all of your life provide for you. If you have millions of dollars in your retirement account, you might be set simply withdrawing a certain amount calculated upon when you hope to die. That’s not the best choice though. All of us should be good stewards of our money and that means the money should be invested. It’s not just about you, it’s about your family.
If you can see your money on an account balance each month, it’s not invested.
The hard part for most people is they don’t know what to invest in. To have a self-directed retirement account and direct it to buy stock in Microsoft is obviously something you can do in a traditional retirement account at your local bank or Merrill Lynch.
Self-directed retirement accounts, whether IRAs or 401(k)s, are for people who want above average returns, and safety. You need to know how to find these opportunities and what to do next if you want to invest more like Anthony than Jim.