Many people will not be able to live comfortably and will have to rely completely on Social Security to cover their living expenses. However, retirement does not have to be this way for you. With a good retirement planning strategy, usually managed by an effective retirement planner, you can live well off even after retirement.
Here’s all you need to know about the various types of retirement planning strategies available, as well as how to choose the best one for you.
Individual Retirement Plans
Everyone does not have access to an employer-sponsored retirement plan or a retirement planner. Even if you have a workplace retirement plan, you may wish to save more money than the yearly contribution limits. Individual Retirement Accounts (IRAs) and annuities are two of the greatest retirement options for saving on your own if this is the case.
Related: How Much Should You Save for Retirement?
Traditional Individual Retirement Account
A typical IRA can be opened by anyone with taxable income. If you don’t have a workplace retirement plan, donations to a standard IRA are normally tax-deductible. Contributions to a traditional IRA can be invested in a variety of assets, including mutual funds and exchange-traded funds (ETFs), and investment earnings are tax-deferred. Your IRA payouts are taxed as ordinary income if you begin withdrawing beyond the age of 59.
At that age, a retirement planning calculator can indicate how much you should set aside with the time running out. Also, your retirement planner would advise you on the best available investment which fits your limited time.
Roth IRA
A Roth IRA is one of the best retirement accounts available if your annual income isn’t too large. While Roth IRA contributions are not now tax deductible, you will not have to pay income taxes on withdrawals once you retire. Furthermore, you can withdraw funds from a Roth IRA before retirement without penalty, so a Roth IRA can also serve as an emergency fund in a pinch.
Although there are income levels that limit who can contribute directly to a Roth IRA, the overall yearly Roth IRA contribution limitations are the same as for a traditional IRA+.
IRA for Spouse
A spousal IRA is not a unique sort of individual retirement account. Rather, it is a strategy that married couples can employ to optimize their retirement savings through the use of an IRA.
If you’re married and one of you doesn’t work or earns much less than the other, you can save more for retirement with a spousal IRA. The non-working spouse can start a regular or Roth IRA in their own name and contribute according to their household income. Normally, you are only allowed to contribute the amount that you, not your household, earn in a year.
This retirement planning strategy allows some married couples to double their IRA retirement savings each year.
Annuities with Fixed Payments
A sort of insurance contract that might augment your retirement funds is an annuity. There are many different types of annuities to select from, but we believe that fixed annuities are the best option for you.
Fixed annuities are simpler to understand and compare to other types of annuity contracts, such as indexed or variable annuities. Fixed annuities typically provide consistent payouts, tax-deferred growth, and, in some situations, a death benefit payable to a beneficiary if you die.
In addition, unlike other retirement plans, annuities are not subject to IRS contribution limits, so you can put as much money into your future as you like. If you have multiple streams of income, this account is best for your financial retirement plan.
Retirement Plans for Self-Employed and Small Businesses
Self-employment is becoming increasingly prevalent. When it comes to retirement savings, being a small business owner or a solo entrepreneur means you’re on your own. However, this does not exclude you from receiving at least some of the advantages provided to persons with employer-sponsored retirement plans.
Here are the finest retirement plans for you, whether you hire a team or work as a solitary freelancer.
SIMPLE IRA
If you own a small business and don’t have another retirement plan for your employees, consider a SIMPLE IRA or Savings Incentive Match Plan for Employees IRA. You must contribute to a SIMPLE IRA for each of your employees. Your contributions must meet at least one of the following criteria:
- Match your employees’ contributions up to 3% of their overall pay.
- Contribute 2% of your employees’ pay, even if they don’t contribute themselves.
Employees are immediately vested in a SIMPLE IRA, which means they have full ownership of all monies in their accounts. Your company’s contributions can be deducted from its taxes.
SEP IRA
If you operate a small business, you can set up a Simplified Employee Pension (SEP) plan, often known as a SEP IRA. Don’t let the name fool you; SEPs are defined-contribution retirement plans, not pensions. SEP IRAs are established by Simplified Employee Pension plans for self-employed individuals and small business owners.
Employers can offer SEP IRAs to all employees who are 21, earn at least $600 per year from the business, and have worked for the company for at least three of the last five years if they choose this plan.
Employees cannot contribute to the SEP IRA, unlike other retirement plans; only the employer can. Employers may contribute up to 25% of an employee’s salary, whichever is less.
Please keep in mind that if you operate a business and contribute to your personal SEP IRA, you must also contribute the same percentage to all of your workers’ SEP IRAs. Contributions provided by your company may be tax deductible.
Payroll Deduction IRA
A payroll deduction IRA is a low-cost alternative that requires little effort from the small business owner. With this option, your employees open IRAs with their preferred financial institution and then allow payroll deductions to finance their IRAs.
Your primary obligation as a small business owner is to deduct allowed deductions from employees’ paychecks and direct them to their chosen IRA account.
Employees are the only ones who contribute to the account, and there are no filing requirements for the employer. Payroll deduction IRAs are simple to set up and manage, with little to no cost to the employer. In the tax year 2022, employees can contribute up to the standard IRA limitations of $6,000, or $7,000 for those 50 and over.