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What to Do When Your Job Offers an Awful Retirement Plan

retirement planning

So you’ve finally decided to start saving for retirement. The good news: it’s never too late to start. The bad news: Your employer offers a paltry savings plan, or worse, none at all.

Retirement planning can be fulfilling when you’ve got a solid plan in place, but frustrating when the career you’ll look to retire from in 10 to 20 years’ time doesn’t give back much in the way of savings. Many companies offer the standard 401(k), but do a poor job of matching money you contribute to the fund. Unfortunately, employers of the stingy kind who don’t provide a retirement plan (or health insurance or good salaries, for that matter) are a dime a dozen.

So what is the best retirement savings account when your boss doesn’t follow through? Take a look at some of these suggestions, so you won’t have to look back at your prime working years regretfully.

What Is the Best Retirement Plan?

There are many different retirement plans out there. What’s great about them is that they can all serve you well when saving money for years to come.

The Individual Retirement Account

A list of the best retirement savings plans wouldn’t be complete without the inimitable IRA. IRAs are all about the tax benefits and come in two main varieties: traditional and Roth.

Traditional IRA

The simple appeal of saving money in a traditional IRA is that it’s tax deferred, meaning that you don’t pay taxes on what you deposit until after you withdraw your funds for retirement. You can contribute to an IRA until age 70, and start withdrawing money at age 59 1/2 — withdraw before and pay a penalty fee. This can be avoided in some cases, like when using IRA savings to buy a house.

Roth IRA

To recap — no taxes are paid on money invested in a traditional IRA until after withdrawal. With a Roth IRA, it’s the opposite. Here, you’ll be taxed first when depositing, but not when withdrawing. Another specific difference with the Roth version is that you won’t be penalized for the pre-59 1/2 withdrawal rule, but only for taking out contributions. Withdraw interest early, and there’s no fee.

Some financial advisors tout the rewards of a SEP IRA, or the Simplified Employee Pension Individual Retirement Account. SEP IRAs are great for the self-employed, or anyone looking for an auxiliary savings plan outside of work. According to Kerry Hannon of Forbes, you can contribute up to 25 percent of your net income to a SEP IRA.

The Solo 401(k)

There are variations on standard 401(k) retirement plans. The solo 401(k) is a good plan for people who freelance on the side and have few to no retirement plan options. Only self-employed people and their spouses are eligible for this solo-savings option. According to Forbes, the contribution limits under a solo 401(k) are generous — up to $16,500 — and funds from a previous employer’s 401(k) can be rolled over into your new solo plan.

Annuities

Generally issued through a life insurance provider, an annuity is another retirement savings alternative for you to consider. Here, the insured provides the insurer with financial resources to be invested and then paid back after the money you invest builds interest. You can choose a lump sum payment or a series of fixed payments.

401k retirement plans

Investments

Not every retirement plan option needs to be retirement-centric. Standard investment workhorses like mutual funds, stocks, bonds and treasury bonds can garner enough interest in the long run to supplement, or even finance completely, your retirement if done wisely. These types of investments are structurally basic: with stocks and bonds, you’ll place “stock” in their future with the money you invest. Becoming a shareholder, or part owner, can yield high returns with higher investment. As always, don’t invest blindly — it’s suggested to consult with a financial professional first.

The High-Yield Savings Account

Money market accounts, certificates of deposit and other savings accounts offer higher interest rates, usually when the account balance is high. If you’ve spent a few years earning interest off an investment, for example, try depositing some funds into 12- or 24-month CD, then, reinvesting those earnings into a new CD or other savings product. These accounts work well on their own or as a supplement to another retirement savings account.

Retirement Planning of the Future

We’re learning that Social Security might not always be a fall back, as rising medical costs, unemployment and payout errors could lead to the demise of the program in the U.S. With the added negative trend of people not saving for retirement early enough, it’s important to begin saving now! Plenty of financial alternatives out there exist to make retirement planning an easy process.

With these tips in mind, even if your job offers an above-average retirement package, don’t rely on an employer to decide how much you can or can’t save for retirement. By the time it comes to hang up your working hat, a gold watch and a pat on the back aren’t enough currency to get by in life when you’re older than 65 and your bank account is empty.

Photo Credit: WashULibraries

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  • Erica M.

    When do you think social security will be deminished? I am in my twenties and I want to know I will ever see my contributions personally.

    • Frodo buzz kill

      Yes you will receive SS. The result of a lack of a ” national pension” is most pragmatic: social disorder. 401 k plans are at the vagaries of the market and imagine if you could, what poverty the lack of SS would cause……Our country is the only world power without a national healthcare program, witness the crisis in healthcare; imagine if the defined benefit of SS were removed. No a defined benefit is necessary so it will remain.

      Besides with SS it is true insurance, you pay 50 percent and the govt pays 50 percent……………..

  • http://aztrader01.blogspot.com/ ArizonaTrader

    Personally, I like the Roth. It’s just really flexible. Annuities would be great, if the fees weren’t so high. And all those riders you have to add…too complicated.

    • Alabama Advisor

      Not all annuities have riders and fees. There is no limit to what you can contribute to an annuity. Annuity interest is tax deferred. Would you rather compound interest on $1.00 or $0.70?

      This is the problem with financial advice on the internet, people who don’t know any different would read this post and immediately dismiss an investment vehicle that would likely be a great alternative due to misinformed advice.

  • Harry

    If you don’t have a good retirement plan at work or no retirement plan at all save/invest on your own. The key is to start saving/investing early in life and be consistent (save with every paycheck). The power of compounding is lost on many people. Also take advantage of any employer matching plan, max out contributions when possible, eliminate debt, avoid risks with your nest egg and plan for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.). I recently found the site Retirement And Good Living which provides information on various retirement plans, types of investments, finances, health, retirement locations, part time work and also has a great blog of guest posts about a variety of retirement topics and several retirement and health calculators. .

  • Celery

    Here’s the path to retire on your own terms, in 7 steps:

    1) Pay off your debts as fast as you possibly can. If this means living in a crappy studio apartment and eating ramen everyday for a couple of years, do it. If you want to buy a car, get a reliable beater. Get insurance for $25/month from 4AutoInsuranceQuote. Forget about buying a house until your debts are paid off.

    2) Once you are out of debt, stay out of debt. The only exception to this rule is a vehicle and a house. If you want to get a nicer car, buy used and be able to pay it off in a year or 2.

    3) If you are going to stay in the same spot for at least 10 years, buy a house, preferably with at least a little bit of usable land. An acre is good, 5 acres is better. Take the amount you are pre-approved for and cut it in half – that’s how much you should spend on a house. Come to the table with at least 20% down and make a couple of extra mortgage payments every year. If you’re going to be transferred or relocate every 5 years, forget about buying a house and rent instead.

    4) Develop multiple revenue streams. Do contract work. Start a business on the side. Invest in a business as a silent partner. Raise chickens, breed dogs or grow apples. Build websites. Buy and sell antiques. Acquire rental property. Sell something that generates residual income. Learn to play the currency markets or trade stocks. Do whatever you can to generate income from multiple sources.

    5) Grow these multiple revenue streams to the point that they generate enough consistent and reliable cash flow to replace your current income.

    6) Make as much as you can. Save as much as you can. Give away as much as you can.

    7) Retire!- the sooner, the better. Be sure you understand that “retirement” doesn’t necessarily mean you stop working, it just means having the freedom to do what you want to do, when you want to do it.

    Don’t be foolish and fall into the trap of trying to measure your wealth by the value of your assets. Markets change. Valuations fluctuate. Instead, measure your wealth by the amount of cash flow your assets consistently generate.