Do Government Sponsored Plans Make It Harder To Retire?
Most people are presented with 2 choices when it comes to retirement planning: a Roth vs. 401k. Now...of course there are more options than this, but mainstream financial professionals are really pushing these two products as the foundation of a sound financial plan.
When making a choice between a qualified plans, think about your main goal. You are trying to save up enough money so that you can live comfortably in your old age. However, if you plan on doing well, then a 401k will have you paying back more in taxes than you saved. Forget about the employer match for a moment.
Focus on one of the "facts" you are constantly told about these plans. You are told that you'll be in a lower tax bracket. Do you think that that makes sense? If that were true, then it means that you are making less money than you are now. After you adjust for inflation, you could be living a very different lifestyle than what you had first imagined. What I'm trying to say in plain English is that if you are in a lower tax bracket it's because YOUR BROKE! Do you want to be poor in retirement?
Another option is the Roth IRA. This plan is pretty interesting. Since you contribute after tax dollars, you get tax-free retirement income. While there's nothing wrong with that, you do have a problem with one particular aspect of this plan: contribution limits. Usually, you'll find out that you're going to need to contribute much more per year than what your Roth will allow you to contribute.
What it ultimately comes down to is: which qualified retirement plan is the best? But, do you need to use a qualified plan? Most mutual fund investors earn less than the rate of inflation according to DALBARinc.com. In qualified retirement plans, the bulk of your money will probably be invested in - you guessed it - mutual funds. The inherently high fees in some of these plans will further drag down your returns.
So, what can you do instead? Many families and businesses have turned to private insurance contracts. High cash value life insurance can yield between 5-6% tax-free over your lifetime, the cash values are guaranteed, and the death benefit advances your future expected savings to your family if you are unable to complete your plan due to death regardless of how much cash has actually been built inside the plan.
When making a choice between a qualified plans, think about your main goal. You are trying to save up enough money so that you can live comfortably in your old age. However, if you plan on doing well, then a 401k will have you paying back more in taxes than you saved. Forget about the employer match for a moment.
Focus on one of the "facts" you are constantly told about these plans. You are told that you'll be in a lower tax bracket. Do you think that that makes sense? If that were true, then it means that you are making less money than you are now. After you adjust for inflation, you could be living a very different lifestyle than what you had first imagined. What I'm trying to say in plain English is that if you are in a lower tax bracket it's because YOUR BROKE! Do you want to be poor in retirement?
Another option is the Roth IRA. This plan is pretty interesting. Since you contribute after tax dollars, you get tax-free retirement income. While there's nothing wrong with that, you do have a problem with one particular aspect of this plan: contribution limits. Usually, you'll find out that you're going to need to contribute much more per year than what your Roth will allow you to contribute.
What it ultimately comes down to is: which qualified retirement plan is the best? But, do you need to use a qualified plan? Most mutual fund investors earn less than the rate of inflation according to DALBARinc.com. In qualified retirement plans, the bulk of your money will probably be invested in - you guessed it - mutual funds. The inherently high fees in some of these plans will further drag down your returns.
So, what can you do instead? Many families and businesses have turned to private insurance contracts. High cash value life insurance can yield between 5-6% tax-free over your lifetime, the cash values are guaranteed, and the death benefit advances your future expected savings to your family if you are unable to complete your plan due to death regardless of how much cash has actually been built inside the plan.
About the Author:
Author: There is only so much information that can be covered in one article. If you want more information about any aspect of financial planning, please visit David's website.
posted by Debt Consolidation Loan at
2:26 AM
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