Many people believe borrowing from their 401(k) account is a smart idea because the interest rate is generally lower than a commercial loan. While that might be true, it doesn’t help with the ultimate goal of long-term investing. Here are some of the reasons why borrowing from a 401(k) isn’t the best choice:
- Stop Saving: Many plans won’t let investors make any contributions to the account until the pay off the entire loan. Or the borrower will be unable to make contributions because they will paying off the loan. Either way, there is no money growing in the account.
- Financial Red Flag: If someone is having to borrow from their 401(k) after exhausting all other options, it could be a sign that they are living beyond their means. This is a habit that could possibly follow them into their retirement years, making it difficult for them to retire with a decent amount saved.
- Career Issues: Often these loans must be paid back immediately if the investor quits their job. That could trap them in their current job, or cause issues if they suddenly lose their job.
Before an investor borrows from their 401(k), they should think it through completely. Use a different way to finance the loan if possible. Or, maybe they need to reevaluate their lifestyle and why they need the money in the first place. Borrowing from a retirement account could have significant long term consequences.
It can be a tough decision for most people when choosing the most beneficial way to spend or save money. Many people think choosing to invest in their retirement is a better option than paying for their children’s college tuition and here’s why:
- Teens applying to college, can apply for student aid. Students are often eligible for scholarships, grants, and loans to help them cover the cost of tuition. Many students work part time during college to help pay for the fees as well. They do have some options when paying for college other than having their parents finance it.
- While students have alternative ways of covering the cost of college, their parents don’t have many alternatives when it comes to financing retirement. What they save over the years is usually what they will have to live off during their retirement years. Some retirees are lucky enough to find part-time work if they don’t quite have enough money saved up, but some can’t because of age or illness.
You can save for both retirement and still help pay for college by starting early and making retirement the first priority. Before the kids come along and while they are still young, save as much as possible in a retirement account before putting anything in a college savings account. Time and compounding will be on your side.
Mountain West IRA offers many different self-directed IRA options when it comes to retirement accounts. They will have one that can help you save for retirement before saving for the college years.
Although the goal of saving $1 million for retirement seems a little farfetched, with some planning and good decisions, it can be a reality. So here are five tips to help you get there:
- Take advantage of compounding
Starting early is the key to growing a robust retirement savings. Compound interest ends up helping investors save much more over time. Starting early also gives investors more time and keeps the stress to a minimum when thinking about the future.
- Creating a plan
Instead of going with the flow, make a solid plan for retirement savings. It helps to avoid emotional investing, such as putting more money in when the market has been going up and selling when it goes down. This can actually be hurtful to investors. Sticking with a long-term plan and not focusing on short-term market fluctuations is the best way to reach your retirement goals.
- Company sponsored plans
Saving in a company plan is especially beneficial when the employer matches your contributions, which can help push you closer to your goal even faster. If a company plan isn’t an option, Mountain West IRA has a variety of self-directed IRA options for people looking to save for retirement.
- Automatic deductions
Having retirement savings automatically deducted from paychecks takes the responsibility away from the investor. They don’t have to think about it or accidentally spend it.
Savings alone won’t help you get to $1 million. Most people invest in the stock market when saving for retirement, but there are other options. With a self-directed IRA account from Mountain west IRA, investors can explore other options such as real estate, notes, mortgages, and more.
Learning good saving habits early in life could really help individuals in the long run. Children whose parents or grandparents take the time to explain finances and saving to them will probably have a better handle on their spending and saving habits later in life. Motivating them to start saving can be tricky though. Making it a fun activity usually encourages them to become interested in finances and saving. Use these tactics to teach children about money and how long term saving is beneficial:
Having something to look forward to, is something most people, not just children, respond to well. Let children make a chart with the allotted amount of time and money it will take for them to save up for a new bike or video game that they want. Or, let them draw/cut out a picture of their goal and put it on a jar where they store their money. The visibility of the money is a reminder of how far they’ve come and how far they have left.
Often, credit unions with children’s savings accounts reward them with prizes for making a deposit. This can be a great way to also teach children about banking. Or, if they want to do their saving at home, create rewards specific to that child’s interests. It could be a trip out for ice cream or as simple as a sticker.
Children frequently mimic the behaviors of their parents. So, if parents set up a saving routine with goals or rewards for themselves and save alongside their child, it will reinforce the idea of saving. This could also be done by parents matching the child’s saving contributions, much like employers do with 401(k) accounts.
Although seemingly small steps, these tactics can create a lifetime pattern of saving and working toward long term goals for children. The adults can benefit too by putting their savings into a retirement fund.
401(k) plans, whether company-sponsored or not, can be great vehicles for retirement saving. Maximize this account with a few simple steps.
- Get Growing – Many people can’t start contributing the maximum amount right away. To get to the maximum contribution, individuals should up their contributions by one percent each year. This is an amount that can be scheduled into the budget, but doesn’t break the bank.
- Maximize Bonus Checks – Instead of using that annual bonus to buy something fun, live off of it for the month. That way investors can use their regular paychecks to max out their 401(k) accounts. It isn’t as glamorous, but will help out in the future.
- Remember the 401(k) – When moving over to a new job, investors should make sure they take their 401(k) with them. After years of contributing, it would be a waste to leave that money sit.
- Plan for Emergencies – Always make sure to have a separate emergency fund. Those who don’t set one up ultimately have to take money out of their retirement funds for emergency situations, cheating themselves out of money later.
- Minimize Withdrawals – After retiring, investors should be careful not to withdraw a high percentage of their 40(k) a year. That money needs to last quite a few years. However, if investors have other investments such as real estate that bring in an income, they could withdraw more per year.
Being aware of how much money they are putting in and trying to make it last can help investors maximize their 401(k) account. Consider transferring to or opening a self-directed 401(k) with Mountain West IRA.
Small business owners are in a different boat when it comes to saving for retirement. Unlike their employees, business owners don’t just check a box once to keep taking money out of their paycheck each payday. This means they have to be even more disciplined when it comes to saving money. They don’t have the luxury of not thinking about it.
To stay disciplined, many business owners have found setting a goal to challenge themselves can encourage them to set a certain amount aside each month. Goals are good motivators and increasing those goals every couple of months could help set aside a decent amount for retirement.
Treating saving for retirement like a bill, is another trick used by many successful small business owners to consistently save each month. A self directed SEP IRA account can be the perfect vehicle for business owners to use when saving for retirement.
Business owners who have a flexible income often find deciding on a percentage of their income rather than a fixed amount can be a more practical approach. Also, taking small steps into saving can help. Instead of planning on a huge percentage if it isn’t practical at the time, start small and build up.
The individuals at Mountain West IRA can help small business owners set up a retirement plan to help them successfully save. They offer many options and can help determine which retirement program will best fit the situation.
Retirement is seen as a time to enjoy the finer things in life. Many plan on international trips, golfing every day, and living a little more luxuriously. What they don’t take into consideration, is that they will no longer have an income to replenish what these grand plans use up. Some retirees need to rethink their retirement plans and look at it a little more realistically.
Instead of increasing expenses, it is more beneficial to downsize. Moving to a less expensive residence and taking a long look at what expenses they could cut might make them feel better in the long run. A little reimagining could be the difference between living comfortably the next 20 to 30 years and feeling panicked at the lack of money in their bank account.
Of course, a way to keep those luxurious plans alive is too bump up retirement savings. Soon-to-be retirees can look into investment opportunities and try to increase what they have already saved. Self-directed IRAs can help by offering more options for investing and increasing savings. But the key here is to still be honest with themselves. Waiting until the last minute to do this won’t help much.
Mountain West IRA offers different types of plans to help everyone find the one that fits their financial situation. With self-direction, those planning for retirement have many more investment options including real estate, precious metals and more. They can help build the ultimate retirement machine.