Top Retirement Plan Companies

The top retirement plan companies include major brokerage, mutual fund and financial advisory firms. These retirement companies have many things in common, such as providing tools for clients to factor how Social Security benefits factor into retirement. Each company has plenty of advice, news and research on its website as well as regular client updates.

Clients may choose between traditional and Roth IRAs, as well as 401(k) and SEP IRAs for small business owners or the self-employed. The target-date retirement mutual funds offered by these companies make managing investment risk much easier. Also known as lifecycle funds, it’s a simple matter of choosing your approximate retirement year. For instance, say, 2045, and the fund rebalances investments from growth to income as that date approaches.

Here are some of the top retirement plan companies…

No. 4 Charles Schwab

Schwab retirement accounts all come with investment help and guidance. The company is known for its Intelligent Portfolios automated robo advisor investing. These robo advisors are especially popular with younger, novice investors. This is because getting started is inexpensive and little in-depth market knowledge is necessary. A robo advisor can also help those near or in retirement manage their portfolio and assist in tapping assets with the best tax strategies in mind.

Clients can receive advice from Schwab’s financial professionals on all sorts of retirement-related matters. That includes specialists in taxes, estates, insurance and more.

Regarding fees, Charles Schwab does not charge opening or maintenance fees for IRAs, and there are no account minimums. For its individual 401(k) plan for the self-employed or small business owner, there are no monthly service fees and no commissions. This is in regards to online listed equity trades or ETF trades in your Schwab account.

Keep reading to learn more on retirement plan companies.

No. 3 Fidelity

Fidelity offers flexible retirement planning that “changes as you do.” It’s long been one of the top choices for retirement accounts, and with good reason. Fidelity’s managed retirement funds provide clients with a single, age-aligned investment strategy.  Advisors can also help with a multi-fund strategy in which you build your own portfolio. Fidelity’s model portfolios are available to generate ideas.

The company also offers a Roth IRA for Kids, enabling children to start saving for retirement as soon as they have a job. A parent or guardian manages the account until the child is no longer a minor.

In addition, with a Fidelity IRA, there are no account fees or minimums if you manage your IRAs yourself. However, if you want Fidelity to manage your IRA, there is an advisory fee.

No. 2 T. Rowe Price

T.Rowe Price is a retirement plan company that offers a full range of retirement planning. For example this includes all types of IRAs and 401(k) or IRA rollovers. Business owners and the self-employed can find a variety of tax-deferred retirement plans.  After completing a short questionnaire, T. Rowe Price recommends a diversified model portfolio. They recommend this for each client’s unique needs via its ActivePlus Portfolios program.

Its ReadyChoice IRA pairs a traditional or Roth IRA with a T. Rowe Price retirement fund. Schedule a regular recurring transfer from your bank account to your IRA with its Automatic Buy program. Start by contributing as little as $100 monthly to your retirement account.

The company touts that over 95% of its retirement funds with a 10-year track record beat their 10-year Lipper average as of March 31, 2022. The Lipper averages are indices produced by this Thomson Reuters subsidiary to establish portfolio, ETF or mutual fund benchmarks.

In addition, for IRA or individual 401(k) accounts below $10,000, there is a $20 annual fee. However, those subscribing to paperless delivery are not charged participant fees.

No. 1 Vanguard

Vanguard is tops when it comes to target-date retirement funds, although Fidelity and BlackRock also rank highly. When it comes to mutual fund choices for retirement accounts, Vanguard is second to none. This makes it a great addition to this list of retirement plan companies. It offers more than 100 no-load Vanguard funds, with no minimum initial investment for retirement accounts. It’s a solid choice for index fund and ETF retirement investors.

Vanguard is known for its low fees. The expense ratio of the average Vanguard mutual fund or ETF is 82% lower than the industry average. For retirement accounts, Vanguard charges $20 annually for each Vanguard mutual fund in an individual 401(k) or Roth (401)k plan. However, if the participant has at least $50,000 in qualifying Vanguard assets, these fees are waived. Vanguard offers free stock and ETF trading.

Retirement Plan Companies Considerations

The top retirement plan companies offer many similar features. How to decide which one is best for you? When comparing retirement plan companies, look at fees, which eat into profits over time. Do you need a lot of investing advice, some guidance, or are you a DIY investor?

Before deciding on what company to invest with, put together a basic retirement plan for yourself. Your retirement plan company advisor will let you know whether your plan is realistic and the best ways to reach your goals.

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Before bids were made though, he asked attendees to write down how many pennies were in the jar. Once the auction began, the bids came fast and high. One gentleman was willing to pay as much as $50 for the jar of zinc and copper. This part of the experiment went about as expected for Dr. Skousen. It demonstrated the madness of crowds.

Part two of the experiment was to demonstrate the wisdom of the crowds. As the auction spiked the value of the jar, the written guesses of the number of pennies in the jar was averaged out. This figure – as it turns out – was very close to the actual number of pennies in the jar. And yes, it was far less than 5,000 of ‘em.

This was done to demonstrate how the same markets can be both overvalued and undervalued depending on outside circumstances. And it turned out to be a harbinger of the remainder of the weekend’s market analysis.

He also mentioned a handful of stocks that he thought were good investments amidst inflation for 2022. These included Main Street Capital (NYSE: MAIN), SPDR Gold Shares (NYSE: GLD) and Bunge Limited (NYSE: BG) among others.

Dr. Skousen’s presentation was followed by Keith Kaplan, the CEO of TradeSmith. Kaplan took the time to explain how to discover what’s really happening in the markets. And it should be no surprise that you won’t learn about it from the talking heads on television.

During his 30-minute presentation, he showed how investors can learn to maximize capital by focusing on healthy stocks, indexes and sectors. And while there are several tactics to go about this, Kaplan demonstrated how one of TradeSmith’s latest tools, CoPilot, is a powerful tool designed for short-to-medium term options trading.

From there, the stock market talk gave way to alternative investments. Namely, Rare tangible assets. This talk focused on a flurry of appreciating assets like ancient coins, rare stamps, limited-edition artwork and first-edition books. Geoff Anandappa, the director of Rare Tangible Assets Ltd. offered great insight into the top investment opportunities to protect against rising inflation rates.

Our friend Matthew Carr followed Anandappa with a presentation on an area of the stock market that got a lot of attention last year: IPOs. Now the IPO market has been relatively quiet of late due to volatility. But it’s likely to explode again soon, according to many market experts including Carr.

As such, he instructed ways investors can avoid getting burned by FOMO by targeting only the best companies at the best possible pivot points… Leading to the biggest possible profits.

The Second Half of the Morning

After a quick coffee break and stretching of the legs, Nathan Hurd of The Oxford Club welcomed to the stage rebel hospitality entrepreneur and New York Times bestselling author, Chip Conley.

Conley brought with him some 35 years of professional experience in the hospitality industry to explain the joys of getting older. After joining Airbnb (Nasdaq: ABNB), which was led by a group of younger entrepreneurs, he initially took umbrage with being called an “elder.” But he has since embraced it wholeheartedly. To explain, he drew from his book, Wisdom at Work: The Making of a Modern Elder.

The simple fact is people are – for the most part – living longer. And at midlife, many think they should slow down. But this is dead wrong according to Conley. Studies have also shown that the U-curve of happiness reveals that happiness levels increase as you approach 50 and beyond. So embrace it and make the most of it.

Conley’s presentation was followed by an intimate Q&A session between Hurd and Conley. Here, Conley explained his theory on “Middlescence.” This is when you emerge as an elder and have more wisdom to share. The two also explored the “great midlife edit” and the importance of cultivating community.

This fascinating talk on the beauty and benefits of aging was followed by a presentation by Donald Hosmer of Royal Energy, Inc. He explained to attendees the ways investors can acquire low-cost oil reserves. Hosmer illuminated a new way to invest in energy using your tax dollars. Furthermore, he laid out investing in oil fields can result in a 100% tax write-off that can be used to offset ordinary income, IRA/401(k) withdrawals and capital gains taxes.

Lunch Break

After lunch, guest speaker Peter Behncke of Gold Royalty Corp. detailed reasons he believes royalty and streaming companies are the best way to play the current gold bull market. We all know inflation is running rampant. However, gold has strong fundamentals as real rates continue to become more negative. The reason is, he explained, royalty and streaming companies provide diversified exposure to gold prices and exploration.

And at the same time they are insulated from cost inflation and have minimal overhead costs. As a result, royalty companies and streamers outperform operators, developers and physical gold in both rising and falling gold markets.

From there, attendees and home streamers were pivoted from gold to silver. President and CEO of First Majestic Silver Keith Neumeyer explained how silver is a critical element that will be used to achieve net-zero emissions. This makes silver a strategic metal to invest in. On top of this, silver is already an integral element of scores of everyday products. All of which makes a bullish case for silver.

After the precious metals talk, Nathan Hurd came back to the stage to talk about methods of creating your rich life. The simple fact is that we are all drowning in information. And the technology that has helped proliferate the spread of information is both a blessing and a curse.

Human output has increased… But happiness has not. In fact, depression levels and the number of folks reporting prolonged levels of stress are skyrocketing. But Hurd introduced a number of exercises to help us all overcome these problems and start enjoying life again. He also offered this spreadsheet with suggestions to help filter out some of the noise of everyday life and start focusing on what really matters.

Nearing the End of the Day…

Before day two of the Investment U conference drew to an end, President and CEO of Riverside Resources John-Mark Staude explained how global events were impacting commodity prices and outlooks going forward.

And the day came to a close with Bryan Bottarelli and Karim Rahemtulla of Monument Traders Alliance explaining their methods for investing amidst inflation, war and general uncertainty. Rahemtulla gave a crash course on cluster buying, which he has previously discussed here. He then explained how it was possible to further capitalize off this information using LEAPS.

Then, Bottarelli discussed the two chart patterns that he relies on most amidst uncertainty: the “W” and “M” patterns. He’s been using them for years to routinely pocket 20% trades in a single day. Worth noting, the secret to his success comes from finding these patterns using a three-minute candlestick chart.

At the end of the day, it was a lot of information to take in. But a lot was learned. One member shared that they had no idea they would be able to learn so much about investing in just two days. And the Investment U conference still had another day left…

Read Next: Investment U Conference 2022: Day 3 Recap

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Learn how to prepare for retirement with the steps below. They can help you have everything you need to enjoy a comfortable retirement lifestyle. However, what’s comfortable for you might not work for someone else. So, part of planning to retire is understanding your lifestyle.

Understand Your Lifestyle to Learn How to Prepare for Retirement

Imagining your ideal retirement is the first step in learning how to prepare. How will you spend your retirement? Do you plan to volunteer or travel? How much money do you need per year to live comfortably when you’re retired?

The next step is to determine if your existing savings will be sufficient to support your plan based on a realistic picture of what you may need. You may be able to eliminate or reduce non-essential items by analyzing your current expenses. This can be things like recreation and entertainment.

In addition, some expenses may increase as we age. Healthcare is an example. However, some expenses go down as you stop working. You can cut down the cost of things like commuting and clothing as you get older. Depending on your lifestyle during retirement, you may spend more or less. As an example, if you plan to travel extensively, your projected costs might even be higher than your current costs. So, the sooner you learn how to prepare for retirement, your retirement savings will have that much more time to grow.

Here are five steps to help you learn how to prepare for retirement…

How to Prepare for Retirement in 5 Steps

Diversify your Portfolio and Invest for Growth

At certain stages of your life, you may assume that it is better to keep your investments low risk to protect yourself. However, higher risk stocks can provide you with higher returns over the long run. Although, you should consider a balanced portfolio to fit your risk tolerance, time horizon and liquidity needs.

Make sure to diversify your portfolio. If you have a well-balanced portfolio, you might be able to withstand downturns and generate the kind of income you’ll need during retirement. Your golden years may also last for more than 30 years so plan accordingly. And when it comes to investing, please remember to do your research. There are always risks with investing and diversification doesn’t guarantee you won’t see big swings in your portfolio.

Increase Your Retirement Contribution

In most cases, contribute as much as you can to your 401(k), IRAs and other retirement plans. Moreover, if you are 50 or older, you can set aside more to your 401(k) than normal limits. The 2022 401(k) contribution limit is $20,500. However, those 50 or older can contribute up to $27,000.

Furthermore, if your employer offers a maximum matching contribution, consider contributing enough to qualify for that contribution. For example, your employer might match 50% of employee contributions up to 5% of your salary. So, let’s say you make $75,000 a year and contribute $3,750 to your 401(k). As a result, your employer will match half your contribution and put in $1,875. Who doesn’t want money that’s essentially free?

Downsize Your debt

This one goes for credit card debt, student loans, car loans and paying off your mortgage. Aim to pay off your debts before retirement by accelerating your payments. The CPA and chairman of Debt.com, Howard Dvorkin, warned of carrying credit card debt into retirement…

Right now, [credit card] interest rates are hovering around 20%. That means you’re paying a dollar for every five you borrowed.

Furthermore, student loans might seem like a problem for the younger generation. However, In 2017, the Consumer Financial Protection Bureau (CFPB) found that “consumers age 60 and older are the fastest growing age-segment of the student loan market.” At the time, around 2.8 million people over 60 had an average debt of $23,500.

Car loans may seem easy to brush over due to their low-interest rates and simple interest costs. However, these loans can be dangerous because they tend to creep up. And before you know it, you could be under water in debt.

Finally, paying off your mortgage is another way to reduce debt. However, this is less strategic than the other debts. Some people argue that instead of paying off a mortgage early, investing can lead to better returns. After all, mortgages are generally low-interest and tax-advantaged. So, it can be more impactful to put your money into larger dividend investments than to pay off your mortgage if you’re not debt-averse.

When making purchases, consider paying cash to avoid racking up new debt. Managing existing debt and limiting new borrowing will help you reduce the amount of retirement income that you’d end up spending on interest.

The Final Line on How to Prepare for Retirement

It’s never too late to get started. However, the earlier you start learning how to prepare for retirement, the more smooth sailing it will be to stop working. Many people wait to plan to retire until later in their career. However, the age of retirement comes sooner than you think. And if you plan carefully and set goals ahead of time, you can save to have the means for the retirement that you’ve always dreamed of.

If you’re feeling behind on learning how to prepare for retirement, know that you’re not alone. It’s never too late to get started. However, the decisions you make now can make a big impact on what retirement looks like for you.

The post How to Prepare for Retirement: A 5 Step Guide appeared first on Investment U.

While there’s overwhelming appeal for crypto as an investment vehicle, it might not be the best asset class for retirement savings. While there’s significant appreciation potential, crypto is also rife with volatility: something it’s demonstrating in 2022. Qualified retirement plans embody “slow and steady” appreciation, with a narrow risk-reward profile. Adding crypto to the mix could drastically expand that window.

Even investors willing to stomach the risk of 401k crypto could find themselves waiting for the opportunity to add crypto assets to their retirement portfolio. While the concept is gaining traction, it’s still a long way off. 

The Push for 401k Crypto Investments

The popularity of crypto is undeniable. There are trillions of dollars in crypto investments in 2022, with more money pouring into this asset class every day. As a result, financial services firms can’t ignore crypto, or even delegate it as an “alternative investment” any longer. In welcoming crypto investors, firms are also looking for ways to normalize crypto investments and make them more accessible. The solution? Enabling retirement investments. 

That said, there’s pushback from a large conglomerate of retirement plan sponsors. According to a survey by the Plan Sponsor Council of America, an overwhelming 98% of plan sponsors have no intent of offering crypto as an asset class within qualified retirement plans. 

Concerns about 401k crypto are also the subject of scrutiny by the Department of Labor (DOL). In March, the DOL issued a memorandum that implied the fiduciary duty of investment advisors to steer retirement investors away from crypto. The DOL statement even went so far as to specify that employers could be responsible for risky crypto trades made through self-directed 401k plans. The implication is that even offering crypto as an investment class could open the door for plan sponsor liability. 

With the potential for government intervention, it’ll be an uphill battle for plan sponsors to authorize crypto within qualified retirement plans… even if they wanted to. 

Crypto is a Risky Retirement Asset

At its heart, crypto is something of an antithesis for retirement investing. Much of the appeal of crypto assets comes from its extreme volatility. Many investors buy up coins and tokens hoping they’re part of the next big boom, and new crypto assets hit the market every month to entice speculators. Unfortunately, most of these cryptocurrencies aren’t primed for long-term appreciation due to factors like excessive supply or low trading volume. 

Even established coins like Bitcoin and Ethereum aren’t stable assets. Over the past 52 weeks, Bitcoin surged to nearly $63,000, then dropped to below $30,000 before spiking at more than $67,000 and tumbling back to $35,000. In 2022 it’s traded up and down erratically. Ethereum hasn’t performed much better, with even higher peaks and valleys. 

For volatility traders, crypto offers plenty of room to profit. For long-term investors who want steady, stable appreciation over a period of decades, crypto isn’t the right asset class. If the crypto markets suffer a flash crash or specific assets fall from recent highs, investors nearing retirement could see a significant portion of their accumulated wealth evaporate at the wrong time. 

Above all, crypto investments depend on price appreciation, which is driven by volatility. This is in contrast to an equity portfolio that can adapt over time. Growth stocks offer appreciation potential early in an investing journey, and compound interest enables rapid growth. Investors nearing retirement can shift into blue-chip dividend stocks or defensive investments to maintain their wealth. This just isn’t the modus operandi of crypto. 

401k Crypto Could Come to Fruition

Despite all of the pretense against allowing 401k crypto investments, some plan sponsors are pushing to offer them. Perhaps the most noteworthy is ForUsAll, a retirement plan administrator that’s aligned with millions of small-to-medium-sized businesses. ForUsAll has announced its intent to offer crypto as an investment class through qualified retirement plans. 

This announcement comes on the heels of a recent partnership struck between ForUsAll and Coinbase, the world’s largest crypto broker. The two companies will collaborate on a product called Alt 401k, which will enable workers to allocate as much as 5% of their 401k portfolio in cryptocurrency assets. ForUsAll hopes to demonstrate positive results from the experiment by capping crypto allocations, which it believes could lead toward more leniency in future allocation amounts. 

There are Still Uncertainties to Navigate

As if there weren’t enough struggles in making 401k crypto investments work, taxation remains an ever-present hurdle. Right now, capital gains tax on crypto trading functions roughly the same as when incurred through the sale of equities. However, there are tax complexities that come into play when considering investments made through retirement accounts. Currently a gray area within the IRS’ purview, there are both opportunities and pitfalls to consider. 

In short, 401k crypto allocations stand to be much riskier than most general investors should associate with. Crypto’s volatility and speculative nature doesn’t fit the paradigm of retirement investing. Moreover, government scruples and IRS uncertainty could result in future problems for eager crypto investors who overlook tax and risk implications. At the end of the day, it’s better to keep crypto out of your retirement accounts. At least for now.

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What is a Retirement Savings Account?

A retirement savings account serves as a vehicle for putting money away for retirement with considerable tax advantages. As fewer American receive pensions, retirement savings accounts play a vital role in providing income for those no longer working.

Various types of retirement savings accounts exist. We’ll review some of the most common.

Traditional IRAs

A traditional IRA allows you to contribute pre-tax dollars to this retirement savings account. The investments are tax-deferred until withdrawal at retirement. At that stage, most people are in a lower tax bracket. You must take Required Minimum Distributions (RMDs) by age 72.

Depending on your income and filing status, contributions to a traditional IRA may prove tax-deductible. If you did not participate in an employer-sponsored retirement plan at work, your contributions are fully deductible. If you, or your spouse, participates in a work retirement plan, you can fully deduct the maximum contribution limit only if your Adjusted Gross Income is $68,000 for a single filer or $109,000 for those married and filing jointly. Partial deductions are allowed for single filers with an AGI of up to $78,000 and married filing jointly of up to $129,000. Beyond those amounts, traditional IRAs are not deductible.

However, to get the most out of retirement savings, it usually makes sense to contribute to an IRA even if not tax-deductible. It is still a tax-deferred method of putting away money for your golden years.

Keep reading for more info on retirement savings accounts.

Roth IRAs

Roth IRAs are funded with post-tax dollars. That means you cannot deduct Roth IRA contributions, but there are other benefits. When funds are withdrawn in retirement, you pay no tax

Unlike a traditional IRA, there are no RMDs with a Roth IRA. You need never withdraw money from these accounts if you don’t have to do so.

Not everyone is eligible to contribute to a Roth IRA. For 2022, those married filing jointly can contribute the full amount if their AGI is $204,000 or less. They can make partial contributions up to an AGI of $214,000. A single filer or those filing as head of household may contribute up to the limit if their AGI is $129,000 or less. Partial contributions are permitted for those making up to $144,000. Above that amount, contributions are not allowed.

SEP-IRAs

If you are self-employed, whether full-time or part-time, a Simplified Employee Pension Plan (SEP) IRA can help you save for retirement. Any size business, including sole proprietorships, can establish a SEP.

A SEP-IRA functions in the same way as a traditional IRA, except for contribution limits. Monies contributed to the SEP-IRA grows tax-free until withdrawal.

401(k)

A 401(k) is an employer-sponsored retirement plan. Employees fund their 401k via automatic payroll deductions taken from their pretax income. This means workers can reduce their taxable income while the funds put in the 401k are tax-deferred until the person starts making withdrawals.

One of the great advantages of the 401(k) is that employers may match contributions up to a certain percentage of employee salary. In other words, it’s free money!

Examples of other retirement savings accounts include:

• 403(b) plans: offered by public schools and some 501(c)(3) nonprofit organizations. Also known as a tax-sheltered annuity plan.
• 457(b) plans: offered by state or local government or tax-exempt organizations.
• 401(a) plans: offered to employees of the U.S. government, state or political subdivisions, or Indian tribal governments.

Retirement Savings Account Eligibility

What can you place in a retirement savings account? Investment eligibility includes stocks, bonds, mutual funds, ETFs, annuities, money market accounts, certificates of deposit, and real estate. While you can place your retirement savings account in an actual savings account, the current low-interest rate environment does not make this a good choice for most people.

Keep in mind that IRA trustees may not allow the real estate investment option. That is due to administrative burdens, not IRS prohibitions.

There are items in which the IRS does not permit IRA investments. These include:

• Antiques
• Art
• Coins
• Collectibles
• Gems
• Life insurance
• Metals, with exceptions for certain bullion types
• Rugs
• Stamps

Rare wines and other alcoholic beverages are also ineligible for inclusion in retirement savings accounts.

As for withdrawal eligibility, a 10 percent penalty is levied if withdrawals are made before the age of 59.5. There are exceptions to the early withdrawal penalty. These include:

• First-time home purchase
• Qualified education expenses
• Expenses related to birth or adoption
• Disability
• Unreimbursed medical expenses if unemployed.

Retirement Savings Account Contributions

For 2022, the maximum traditional and Roth IRA contribution limit is $6,000 for those under age 50 and $7,000 for those 50 and up. You must have sufficient earnings to meet the maximum contribution limit. Otherwise, you cannot contribute the full amount.

You can contribute to both a traditional and Roth IRA, but cannot exceed the contribution limits. For instance, you could contribute $3,000 to both types of accounts. If eligible, you can deduct the traditional IRA contribution.

For a SEP IRA, the  IRS permits you to put away as much as 25 percent of your annual net income from self-employment. For 2022, self-employed individuals may put away as much as $61,000, based on a net income limit of $305,000.

In 2022, employees can make annual salary deferrals of up to $20,500 to their 401(k). Those 50 or older may make an additional $6,500 salary deferral.

Retirement Savings Account Considerations

Whether you are contributing to a Roth IRA or a traditional or SEP IRA, you can only contribute earnings from a job. Money from gifts or investments is ineligible. Many people work past the traditional retirement age. The IRS requires that individuals with traditional IRAs and employer-sponsored retirement plans such as 401(k)s take mandatory withdrawals by the age of 72. However, if you are still working at that age and want to keep contributing to a retirement savings account, you can continue to do so.

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What to Include in Your Retirement Portfolio

No two retirement portfolios are identical. The right choices for your retirement portfolio depend on several factors. These include:

• Amount of money when beginning retirement
• Tax status
• Risk tolerance
• Spousal income and retirement date

For instance, some people may have a large enough portfolio that they can live off the income generated. That, along with social security or a pension, may prove sufficient to support the retirement lifestyle they seek. However, most retirees will have to access their principal at some point. If that’s the case, start by tapping interest and dividends from taxable accounts. You might want to do that rather than drawing down retirement account principal. The funds in your taxable accounts can continue growing. Although, you will no longer be reinvesting the proceeds.

Retirement Portfolio Strategies

If you’ve been investing for a long time, you’ve seen economic ups and downs. Keep in mind that you want to avoid the need to withdraw a large amount of money from your retirement portfolio when markets are down. Reduce that risk by keeping several years of living expenses in savings. This includes CDs or money market accounts. Remember it can take a few years for the market to recover from a significant downturn.

What income sources can you count on for the rest of your life? Which are less certain? For many Americans, social security is the sole example of the former. Perhaps you or your spouse are lucky enough to receive a pension. Knowing exactly how much retirement income you can depend upon without fail is the first step in managing retirement finances.

Your retirement portfolio strategy should focus on achieving a maximum return within a personally tolerable level of volatility. Sustainability is paramount in a retirement portfolio strategy. For best results, start saving early for retirement and use your age as an investment guide. For example, in your salad days, concentrate on a growth portfolio. Such a portfolio concentrates on stocks, mutual funds, and ETFs. At this stage, you have a long time to make up for any losses. At mid-career, shift towards a balanced portfolio. You’ll still have most of your funds in equities, but bonds can partially shield you from market volatility. As retirement approaches, an income portfolio, with a greater bond allocation, provides more sustainability.

Of course, cash, stocks, and bonds aren’t your only retirement portfolio options. There are a host of alternative investments that can make up a portion of your portfolio.

Examples of Alternative Investments

• Real estate: Rental property can provide cash flow in retirement, but it is not liquid. The exception is Real Estate Investment Trusts (REITs), which are publicly traded. Non-publicly traded REITs are less liquid.
• Annuities: These fixed-income investments sold by insurance companies can provide you with a guaranteed monthly income. Many of these instruments are complex. So it’s important to make sure you understand the fee structure and provisions before signing the contract.

Target Date Funds

For some investors, the easiest route in developing a retirement portfolio is focusing on target-date or asset allocation funds. For the most part, this relieves them of actively managing their retirement portfolio. Keep in mind that most such funds are designed specifically for retirement assets. That’s fine for your IRA or 401(k). However, it’s not fine for a portfolio geared for your retirement but without the advantages of a tax-sheltered account.

If going the asset allocation or target-date fund route, perform your due diligence. Pay attention to expenses and fees. These affect long-term performance.

Choose your target date carefully. Your target date must conform with your overall retirement plans. That may sound obvious, plan to retire in 20 years and pick the corresponding target date. However, life doesn’t always go according to plan. Think about what might happen if you had to retire earlier or decided to work a few more years.

Read the prospectus. The truth is that few investors actually do this. The material is lengthy and usually dull.  Fail to read the prospectus, and you won’t find out how asset allocation changes over time.

Review your target-date fund’s performance regularly. It really isn’t a set-it-and-forget-it system. If there are changes in asset allocation by the fund manager, make sure those changes gibe with your retirement strategy plans. It’s also critical to compare your target-date fund’s asset allocation with your outside investments. You could discover your overall asset allocation needs rebalancing.

Diversification

No investor should ever put all of their eggs in one basket, no matter how attractive the basket appears. Would the bulk of your investments perform the same way in event of market volatility? That means your retirement portfolio needs tweaking. It’s wise to consult a financial planner to ensure your retirement portfolio is properly diversified.

Retirement Portfolio Considerations

What are your realistic retirement dreams? Will you be able to fulfill them with social security or a pension? Crunch the numbers on planning for a 30-year retirement. When you know how much you can spend, you’ll know if your retirement portfolio should provide the desired retirement.

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Social Security Early Retirement Penalty

What constitutes taking social security benefits early depends on birthdate. The earliest age to claim social security retirement benefits is 62, but there is a substantial early retirement penalty attached. You could lose up to 30 percent of your potential benefits.

For those born between 1943 and 1954, the full retirement age is 66. Anyone born after that date in the 1950s has several months tacked on for full eligibility. For instance, a person born in 1958 reaches full retirement at 66 years and 8 months. Someone born the next year has to wait until reaching the age of 66 years and 10 months. Those born on or after January 1, 1960 reach full retirement age at 67.

For those taking their social security benefits early, their benefit is reduced 5/9 of one percent for each month before their normal retirement age. This early retirement penalty reduction holds true for up to 36 months. The benefit is further reduced 5/12 of one percent per month if the normal retirement age exceeds 36 months.

That means besides the worst-case 30 percent loss of taking social security benefits at 62, you could expect the following reductions, as per AARP:

• Age 63: 25 percent
• 64: 20 percent
• 65: 13.3 percent
• 66: 6.7 percent

401(k)s and Early Withdrawal Penalty

If you must withdraw funds from a 401(k) or similar employer-sponsored retirement plan before reaching the age of 59.5, it will cost you. Expect to pay a 10 percent additional early withdrawal tax.

There are exceptions to this 10 percent penalty. If you are totally and permanently disabled, you are not subject to this tax. The same holds true if the amount of your unreimbursed medical expenses exceeds 10 percent of your Adjusted Gross Income. You must make this withdrawal in the same year as your unreimbursed medical expenses occurred.

If you are unemployed, a reason many people end up involuntarily retiring early, you can avoid the 10 percent penalty to pay for health insurance premiums. Eligibility depends on receiving unemployment compensation for at least 12 weeks.

Should the owner of the 401(k) dies before turning 59.5, the beneficiary is not subject to the 10 percent tax penalty.

Keep reading for more info on early retirement penalty. 

IRA Early Withdrawal Penalty

Withdrawals from IRAs before reaching age 59.5 are subject to penalties similar to 401(k) early withdrawal. The same exceptions regarding disability, unreimbursed medical expenses and funds to pay medical insurance premiums if unemployed apply.

If the IRA owner died before taking withdrawals, their beneficiary inherits the IRA. Rules on inherited IRAs depends on the beneficiary. A spouse can treat it as their own IRA and designate themselves as the account owner. They can also roll it over into their own IRA, or into a qualified employer plan. No other beneficiary can do this. However, if the surviving spouse is under age 59.5 and decides to take distributions, they will incur that 10 percent additional tax.

While non-spousal beneficiaries cannot claim an inherited IRA as their own, they are not subject to the 10 percent early withdrawal penalty.

Substantially Equal Periodic Payments

There’s another way to avoid the 10 percent early retirement penalty on an employer-sponsored plan or an IRA. Substantially Equal Period Payments (SEPP) are a series of distributions for five years, or until age 59.5, whichever is longer. These payments can be taken on a monthly basis.

If you don’t meet the distribution requirements for the relevant time period, you are on the hook for the 10 percent early withdrawal penalty. Any SEPP modification triggers the 10 percent penalty. It gets worse. Penalties on the deferred interest on previous tax years come into play.

SEPPs are complicated, so you will need to discuss this option with a financial adviser. There are three ways to calculate a SEPP:

• Required minimum distribution method
• Amortization
• Annuitization

All methods use a life expectancy table. For the amortization or annuitization option, an acceptable interest rate requires specification. The IRS states that any interest rate that does not exceed 120 percent of the “federal mid-term rate published in IRS revenue rulings for either of the two months immediately before distributions begin” is acceptable.

What About Healthcare?

Any discussion of early retirement penalties must include healthcare. If you are married and your spouse continues working, you might find coverage under their health plan. If you took an early retirement buyout and your company offered continued health coverage to sweeten the deal, that’s a bonus.

However, if you do not have health insurance coverage at the time of your early retirement, you could end up with an inadvertent early retirement penalty relating to health insurance. Medicare eligibility begins at age 65.

You still have the option of purchasing health insurance at HealthCare.gov. How much you would have to pay for coverage depends on various factors, including whether you choose a PPO, POS, HMO or another network. There are also bronze, silver, gold and platinum categories based on how much you pay for services and how much the insurance company pays. Whether you planned your early retirement or not, healthcare is a crucial decision.

Early Retirement Penalty Considerations

An early retirement penalty affects your overall retirement income. For example, if social security was a mainstay of your projected income in retirement, a 30 percent loss seriously erodes your standard of living. On the other hand, if your retirement accounts are substantial and you have other savings, early retirement penalties may not affect you that much. That’s especially true if you plan to downsize or move somewhere where the costs of living are lower. Your early retirement withdrawal strategies are critical.

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The accumulation Phase first involves deciding on some basic assumptions about inflation, rate of return and when you’ll ultimately pass away. After choosing a retirement date, savers can use that information to decide how much money they’ll need during retirement and how much they’ll need to save.

Taking it a step further, savers will also decide on the type of accounts that they will use to save money. These options include Roth IRAs, Traditional IRAs, 401(k)s, taxable accounts, or even different options through an employer.

If all this sounds overwhelming, don’t sweat. Many folks enlist a financial planner to help them with retirement planning. The planner can also help with the Distribution Phase of retirement planning which is financial planning after retirement.

The good news is that this phase is a lot more fun!

Retirement Planning After Retirement

During the Accumulation Phase, you’ve decided the fun stuff you’ll be doing after retirement. The fun stuff might include travel, spending time with grandchildren, golfing or anything else. Write your retirement story any way you want!

After you retire, it’s time to sit back and enjoy your time. Keep in mind, though, financial planning after retirement isn’t over. You’re now in the Distribution Phase of your plan.

This phase of financial planning has many steps and things to consider. Let’s take a look at a few of them.

Health Insurance

During your working years, your family probably had health insurance through an employer. Though, you have no employer now that you’re retired. So, you’re on your own for health insurance. Fortunately, Medicare is available for retirees 65 or older.

For some retirees, Medicare is just fine. Other retirees may want or need more coverage. For instance, Medicare might not cover dental care, hearing aids, long-term care, or prescription drugs. If you need coverage for these or other things not covered by Medicare, you might consider a Medicare Advantage Plan or other private health insurance.

Remember to account for cost. Medicare has two parts. Medicare Part A is free to most taxpayers. If you’re not eligible for premium-free Part A, you can still purchase it. There is a standard premium for Medicare Part B.

Beyond Medicare, health insurance for retirees can get quite costly. Be sure to account for these premiums in your financial planning after retirement.

Social Security

Retirees can choose to start taking social security as early as age 62 or as late as age 70. Remember that the earlier you begin taking social security, the lower th amount you will receive. In addition, you cannot change your mind.

On the Brightside, your social security check will increase over time. The social security system has a cost-of-living adjustment built into it. In other words,  your social security check increases with inflation.

In addition to these complexities, Social Security also has rules about marital status, early death and many other things. All of these things can affect your payment. Your financial planner or online websites may be able to help you make sure you get the highest amount possible during retirement.

Taxes

Accounting for taxes in your retirement plan could save you a lot of money in your golden years. Unfortunately, taxes don’t go away after you retire. Distributions from your retirement accounts are taxed in different ways.

Good news for Roth IRAs holders. You owe no tax on your withdrawals because you funded your Roth with post-tax dollars. Tax-free distributions are only part of the reason that investors love Roth IRAs. Investment gains within the Roth will not be taxed either.

Taxable accounts are great for savers who cannot get a Roth IRA. You make contributions with post-tax dollars. After that, each investment in the account is taxed on its gains or losses only when it is sold. For instance, if you put $1,000 into a taxable account and invested it in ABC stock and later sold it for $1,500, only the $500 gain would be taxed.

The gains are taxed at the long-term capital gains rate for investments sold after one year. For investments held for less than a year when they’re sold, the tax rate is your regular tax rate. Keep in mind that you will defer any taxable gain until you sell an investment.

Every dollar you take out of your 401(k) or Traditional IRA will be taxed at the same rate as regular income.

Your tax advisor or financial planner can help you make sense of the tax planning after retirement. They can also help decide which accounts to take money from to reduce your taxes as much as possible.

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