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According to a recent GOBankingRates survey of 1,091 adults 18 and older, when asked what assets they have or plan to have in their retirement portfolio, a large majority of respondents (49%) said 401(k) or IRA.
However, even though saving for retirement via a 401(k) or IRA are popular choices, they shouldn’t be the only choices, according to Lawrence Sprung, a certified financial planner, author of “Financial Planning Made Personal” and Founder at Mitlin Financial.
Sprung recommends a multifaceted approach, rather than sticking to a single strategy like using a 401(k) and/or IRA.
“Monies saved through these vehicles will be taxable when withdrawn in retirement,” he said. “We have seen several families over the years that simply use 401(k)’s and IRAs to save for retirement and then when they enter the distribution phase, they have significant tax implications as a result.
By including nonretirement assets in your portfolio, you’ll have greater control over your tax liability and will be in a better position to manage taxes when distribution time comes. Here are six alternative long-term money-saving strategies other than a 401(k) or IRA.
Real Estate Investments
Real estate is a popular method of investing, but it can be difficult for those new to the scene.
Jeff Rose, certified financial planner and owner of Good Financial Cents, said, “To maximize gains from real estate investments, consider not only purchasing rental properties but also exploring online crowdfunding platforms like Fundrise. These platforms allow you to invest in real estate with a smaller initial investment compared to buying property outright and you don’t have to be a landlord. Whether you’re buying property or investing through a platform, focus on areas with high rental demand and potential for appreciation.”
Health Savings Account
Most employers offer an HSA in addition to a 401(k). In order to make the most of these accounts, Rose said, “make sure to contribute the maximum allowable amount each year. Contributions are tax-deductible, and the growth is tax-free, making it a potent tool for saving towards retirement while covering medical expenses.”
Starting a Side Business
“If starting a side business is your chosen path, focus on areas where you have both passion and expertise,” said Rose. “This approach not only ensures enjoyment but can also facilitate a steady income stream into retirement. As you progress, adapt the business model to be less time-intensive, allowing for a smoother transition into retirement.”
Permanent Life Insurance
Andrew Lokenauth, a financial executive who has held leadership positions at Goldman Sachs, Citi and JPMorgan and founder of Fluent in Finance, said that permanent life insurance could be a good long term saving strategy.
By investing in permanent life insurance during your working years, you can borrow against the cash value of your policy. If you’re able to “overfund” your policy, you’ll build up cash value that grows tax deferred. And when you’re ready to retire, you’re able to withdraw cash tax-free.
Lokenauth said you should work with an advisor to structure the policy with retirement savings in mind. He also said to select a mutual company that pays dividends and make larger or additional payments to build cash value quickly.
Retirement Annuities
Retirement annuities are also a good alternative long-term strategy to save money, according to Lokenauth, because they provide guaranteed lifetime income in retirement, grow tax-deferred during the accumulation phase and can potentially produce higher payouts than immediate annuities.
Moreover, Lokenauth said to consider annuities with income riders or joint life options. He advises that you choose an inflation-adjusted payout to maintain purchasing power and use it early in retirement to supplement other income sources.
Rental Real Estate
Investing in rental real estate is a final suggestion from Lokenauth. Rental properties generate additional income during your retirement years and have the potential to appreciate over time. Even better, these properties can be sold strategically for an income boost.
To get the most of this strategy, Lokenauth recommended investing in turnkey rentals to simplify management and making extra mortgage payments during working years to own the property free and clear in retirement.
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