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Finance Personal Finance Do Government Sponsored Plans Make It Harder To Retire?
Finance Personal Finance Do Government Sponsored Plans Make It Harder To Retire?
| Do Government Sponsored Plans Make It Harder To Retire? |
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| Written by David C Lewis, RFA |
| Wednesday, 11 February 2009 10:06 |
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Most people today are looking for 401k help. That's because one of the most popular (if not the most popular) retirement plan is a 401(k) plan. Another popular plan is the Roth IRA. Of course there are more options than this, but these are the two most common. If you are making a choice between a Roth and a 401(k) plan, consider what your goal is in saving money for your future. If you are trying to save up enough money to live on, a 401(k) probably won't be the best choice. That's because the better you do, the more in taxes you pay. In fact, you may end up paying back more in taxes than you've saved. Focus on one of the "truths" 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? Your other option, you are told, is the Roth IRA. The Roth is an interesting creature. It gives you the ability to contribute after tax dollars in exchange for tax-free retirement income. Now, there's nothing inherently wrong with that. The problem is not in the tax benefits, but rather the contribution limits. It is typical to find out that you will never be able to save enough money in a Roth. 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 information: There is only so much information that can be covered in one article. If you would like more detailed information about any aspect of financial planning, please visit David's website. Kindly provided by LJ-Marketing.dk You are welcome to use this article on your own website, if you include the link just before this text. |
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