Alternatives for Retirement Without a 401k Plan

Planning for Retirement Without a 401k Plan

Even if your employer doesn’t offer a 401k program, you can still plan for retirement through other savings options. Like many industries, the financial environment continues to grow and expand its products.

Keep in mind there’s really no reason to feel you’re the only one without such benefits. In a recent study from CNBC, only half of all U.S. workers were employed at a business or company offering a sponsored retirement plan.

So, in the spirit of looking at the glass half full, consider this an opportunity to take control of your finances and become money savvy at the same time.

Know Your Savings Options

There are a few common savings plans to explore if you’re an independent saver. They all share the benefit of being available to consumers who find they’ll be “going it alone.”

A Traditional IRA:

An IRA is an Individual Retirement Account which acts as an individual’s savings account and also offers tax breaks. Contribute the maximum amount of $6,000 per year and deduct money when you file your taxes. You only pay taxes on your contributed income when you use the IRA funds.

A Roth IRA:

A Roth IRA is another savings program available to individuals. The key difference between a Roth and traditional IRA is you postpone your tax savings with a Roth until after you retire and begin utilizing those funds.

What is attractive to many people is all money from your Roth IRA savings is free and clear.

A Basic Savings Account:

Yes, we all remember these from our earliest days of depositing extra money from babysitting or yard chores. Despite traditionally low interest rate benefits, there is the joy of seeing small amounts of money accrue and the relief of knowing you don’t have to tap into your other accounts, such as your IRA, if you encounter a financial emergency.

A basic savings account is also one of the best ways to get into the savings habit, since there’s never a minimum amount of money required to deposit.

Is it Best to Invest?

We see so many ads and commercials about how easy it is for any individual to invest and trade in the stock market, but since this is your money we’re talking about, we encourage a little bit of research.

Buying Stocks:

For close to 100 years, stocks have returned almost 10% on the investment dollar. Many individuals enjoy the process of seeing how their decisions play out and there is always guidance (not necessarily on which stocks to choose), but when it comes to making decisions which fit your financial personality.

However, this is a “long game” we’re talking about. Much like going to a casino, don’t spend if you can’t afford to lose. If you’re looking to get rich in a couple of years, the stock market might not be the smartest choice.

Invest in the Markets:

The “markets” go beyond the stock market. For more conservative investors or those not interested in the dramatics of the stock market, tax-managed mutual funds also offer an opportunity to sock away some cash.

A tax-managed mutual fund produces gains as soon as you sell. You do pay tax on the money, but you can also sell the fund at a time most financially beneficial to you.

Real Estate:

Due to the economy, the good news is there are still many properties being sold below market value, so it may be tempting to buy a property or two as rental units. Read about How to invest in real estate for beginners.

However, if people are paying you to live in your investment, it means you’re the landlord and absorb all the associated responsibility. If you’re very handy or can either pay or barter for a “handyman,” being a landlord can be a beneficial investment. Plus, there’s always the opportunity to buy a multi-family unit and live in one unit while collecting income and equity at the same time.

Work is a Four-Letter Word

You’re young and ambitious. You’re even well-versed in regards to the state of the economy and how the landscape of work is changing. Of course you’ll do everything you can to stash away money for retirement.

But the person you are today may not be the employee you are in a few years. It’s estimated 91 percent of Millennials (born between 1977 and 1997) may have as many as 20 jobs in their lifetime. Meanwhile, the Baby Boomer generation (born between 1946 and 1964) can expect, on average, 7 careers in a lifetime.

So let’s agree for now that the best real life benefits of a good job are the experience it provides and the money it puts in your pocket. If you see a pattern of taking jobs you enjoy over the sole financial gain, then maybe work isn’t something you grow to dislike. Here are two questions to ask in regards to prolonging your work life:

Do I Need to Work Longer?

How you answer this question will depend on your overall work history, savings contributions, etc. One statistic which may make the idea more attractive is five more years working full-time may allow you to contribute an additional $30,000 into a Roth IRA.

Will I Need to Work Full-Time?

As you progress through your early-to-mid working years, you may already see the option of working part-time – maybe you have skills and experiences allowing you to work from home.

Or perhaps you’ve experienced the benefits of “simple living” and want to spend more quality time with your loved ones. This mindset can also include living in a smaller house or taking on a job with a shorter commute and/or more flexible hours.

Being proactive and independent about your financial future is a way to craft how your retirement years will look. Plus, in the future (even if you do land a job with retirement benefits), you‘ll understand the perks may not last forever.

It’s always easy to benefit from a company-sponsored 401k program. However, there really isn’t any excuse to delay your own savings strategy. Being proactive will allow you to fully reap the benefits of your working years.

Dividend Growth Investing Strategy For A Better Retirement

Retire Better With A Dividend Growth Investing Strategy

The Challenges of Planning for Retirement

Planning for retirement is a daunting task.  There are many things to consider when thinking about retirement.

How much should I save?  What should I invest in?  Will I run out of money?

Often times it can be so overwhelming that many people fail to even plan at all!

Or possibly since they know they should be saving something for retirement but don’t know how much, they will just begin putting aside some random amount invested in some random mutual or index funds without really figuring out the right approach to be taking.  These people are mostly just living with hope.  Hope that they are putting away enough so that one day they will be able to quit their jobs.  Hope that they are saving enough so that they won’t run out of money during their golden years.

Certainly this is better than doing nothing, but there is definitely a better way to go about reaching all of your retirement dreams.

The Problems with Traditional Retirement Advice

Traditional retirement advice often tells people to save some random amount of their annual income (5 or 10%) and invest it in a select group of mutual funds or index funds.  This advice is very general and not personalized like retirement planning should be.  This will most likely lead the hopeful retiree to either not save enough and run out of money during retirement or to not save enough and realize they have to work longer than they had planned.

Another often heard advice regarding retirement is the 4% rule.  The 4% rule allows that a retiree can withdrawal 4% from their retirement savings (adjusted for inflation after the first year) each year to cover living expenses.  The retiree will do this by pulling out any income earned from the investments and selling some investments to cover the difference.  The idea is that a 4% withdrawal rate is safe enough that the investor should/possibly will have enough money to last until they pass away.

Unfortunately, there is a few big problems with the 4% rule.

  1. The biggest problem is the fact that there is a possibility that you will run out of money while still living.  I’m not sure about you but the last thing I want to worry about in retirement is whether or not I am going to outlast my money.
  2. A second problem is that the 4% rule requires investors to sell off investments at inopportune times.  When the market is down and investments are undervalued is not a good time to be selling.
  3. Another problem with the 4% rule is that it requires you to draw down your assets.  Each passing year your nest egg will get smaller and smaller as you use it to cover your expenses.  At the end there will be little if anything left to pass on to your heirs or favorite charities.

Fortunately, there is a better strategy for planning for retirement.

Dividend Growth Investing and a Better Retirement

Dividend growth investing is a great strategy to use when planning for retirement.

Hopeful retirees should calculate the amount of income they believe they will need during their first years of retirement.  You can do this by tracking your expenses and projecting out which expenses you will have during retirement and estimating how much money you will need to cover those expenses.  Our retirement calculator uses a budget in today’s dollars and provides an inflation adjusted budget by year. Be sure to give yourself a buffer so that you don’t fall short when unexpected surprises pop up.

Once you have a fairly good estimate of how much annual income you will need in your first couple years of retirement, you can calculate a goal for how much of a nest egg you should aim to accumulate.  For example, let’s assume you estimate that you will need $45,000 in income during your first year of retirement.  Now if we can put together a dividend growth portfolio that is yielding 3.75%, you will need to have a nest egg off $1.2 million (1,200,000/.0375=45,000).  If your portfolio is yielding more, you will need a smaller nest egg.  If it yields less, you will need a larger nest egg.

This gives us a fairly reasonable goal of how big of a nest egg we want to try to accumulate in a dividend growth portfolio by the time we are ready to retire.

So if we decide that we need $1.2 million for retirement, we can figure out exactly how much we should be saving/investing each year from here until we plan to retire to reach this goal.

The investor will want to work towards this goal and if accomplished will have a solid foundation built for a great retirement.

A dividend growth retirement eliminates all of the problems with the traditional 4% withdrawal advice.  Specifically:

  1. Dividend growth investors will be living off of the dividend income received from the companies they own.  Therefore, they will not need to worry about running out of money because they are not selling their investments to offset expenses.  Instead their portfolio is earning an income (growing each year at a rate faster than inflation) which will be able to cover all of their expenses.
  2. Since the dividend growth retiree is not forced to sell any of their investments, they won’t be selling at the wrong times.  A dividend growth retiree won’t need to sell any of their investments unless one of their companies cuts or eliminates their dividend payments.  In that situation the retiree will want to react by selling off those shares and finding an alternative dividend growth company to own in its place.  Most of the time, dividend growth investors will be long term holders of their companies and won’t be selling.
  3. Since the dividend growth retiree does not need to sell off their nest egg to cover expenses, they will have a large amount of wealth in which they can pass on to their heirs or favorite charity organizations.  You’ve worked hard to accumulate that nest egg, do you really want to watch it all dwindle away and have nothing to leave behind when you pass?

dividend growth retirement plan can be a great investment strategy when it comes to securing your financial future.

Start a 401k plan

Starting A 401k – Everything You Need To Know

The employees or workers think about their accounts of 401K to be the essential part of the package of compensation. The principle behind 401K account is that cash or money overdue from the yearly revenue is invested in the publicly traded finances for disbursement on the retirement. You require adding the accurate amount of the cash to the 401k account to get the advantage of the benefits.

Starting A 401k- Adding Money to Your 401k Account

  • Make the automatic payroll deduction to the 401K in order to include the funds during every period of pay. The company sponsored plans of 401K don’t allow the workers to include cash to the accounts of retirement by check, funds transfers or the credit card.
  • Calculate the deferment amount from every check of pay, which will not be available for you to spend in the near future.  This requires making budget for the month, which accounts for the 401k, the savings and the other tools of finance. The 401K account must form the majority of the retirement investments in the given monthly.
  • You should review every plan of investment your company sponsors for the plan of 401K. Most of the workers choose the conservative cash market account which is low danger however offers the steady return over longer time. You must look very closely at the riskier imitative or the index based programs. Even though they provide opportunity for the high returns, there’s an opportunity as well of losing the investment.
  • You should cut the yearly deferrals of 401k from the annually income if you use the contributions of pre tax. And if you really submit two thousand dollars to the plan of 401k and you really make the thirty two thousand, the burden of tax for this fiscal year is really calculated on the income of the thirty thousand dollars.
  • You should save your family members from the high taxes in future by just investing in the after tax IRA accounts. And these accounts need taxation on approximately all the deferred revenue however offers the withdrawals, which are tax free from principal amount on the retirement.
  • You should ask the benefits manager of company about matching the funds for the account of 401k. The workers provide contributions to the retirement accounts of employee as the enticement for investing in future. If provided a choice then you must select the level of proportional contribution where you really supply the funds at the specific percentage of the investment. When adding money to your 401k you must keep all these upper mentioned things in your mind.