Retirement Planning
August 1, 2022

Retirement Savings Options Beyond Employer Plans

Stewart Willis
Co-Founder & Co-Owner Asset Preservation Tax & Retirement

Many people don’t realize there are additional opportunities to diversify their portfolios andmaximize their money beyond contributing to employer-sponsored retirement accounts. Whileyour 401(k) or 403(b) are vital vehicles for your future retirement, it’s a good idea to exploreadditional options. Some options are helpful tools to work toward your retirement goals, andothers raise red flags.

Additional Savings Options to Consider

Health Savings Accounts or HSAs

Health care is the largest expense retirees have. In 2022, a 65-year-old couple can expect to spend an average of $315,000 in health care and medical expenses in their retirement. That’s 5% higher than last year. If you have access to a Health Savings Account, you can capitalize on the triple tax advantages.

  • The money you contribute to an HSA are pre-taxed dollars and lowers your taxable income
  • As the amount in your HSA compounds, you are not taxed on the growth.
  • When you make qualified withdrawals for medical expenses, you are not taxed on the withdrawal.

And when you reach age 65, you can take HSA withdrawals without penalty for any purpose. Be mindful that withdrawals for medical expenses will be tax-free, but withdrawals for non-medical expenses may be taxed.

Roth IRA

Roth IRAs are funded with after-tax dollars to generate tax-free withdrawals in retirement. Although you are paying taxes on the money upfront, you will be decreasing your taxable income in retirement. Many people find it advantageous to fund a Roth IRA now while tax brackets are at historic lows and have tax-free income in retirement when tax brackets could potentially be higher. If you have a traditional IRA or a 401(k) from a previous employer, it might make sense to complete a Roth Conversion while tax brackets are lower. A Roth conversion now gives you the potential to capitalize on tax-free upside gains while markets are down.

Fixed Annuities

People have traditionally been hesitant when it comes to annuities. Recently, they’ve become less afraid of annuities, and it shows! Annuity sales in 2022 surpassed their all-time high in 2008. Annuities often get a bad rap, but when you understand the different types, they can be helpful savings tools. An annuity is an agreement between you and an insurance company. You provide the funds to receive a consistent payment immediately or on a future date. Fixed annuities offer both a guaranteed rate of return and steady payments to the owner. With guaranteed payouts for your lifetime or a set period time, you can customize distributions to your unique situation and retirement income strategy. The goal of this type of investment is to chase accumulation and growth.

Savings Options That Raise Red Flags

Variable Annuities

This type of annuity subjects your investment to market risk. Not only will your investment decrease in value if the market goes down, but you are also paying fees. In these types of investments, fees can easily hide when the market is doing well. But when the market is down, the fees will be more noticeable. You may be better off investing in the market with options that have lower fees.

Real Estate Investment Trusts or REITs

Real Estate Investment Trusts are a way for people to invest in real estate without having to be a landlord. REITs traditionally perform well in a low-interest rate environment. In 2022, we’ve seen the Federal Reserve raise interest rates several times, making REITs a riskier investment. Before investing in a REIT, make sure you understand how the investment works and know what you are investing in. And be cautious. We’re seeing a lot of REITs not allowing people to divest right now, making that money illiquid.

Before making any major investment decisions, make sure you meet with a financial professional. At Asset Preservation Wealth & Tax, we work closely with our clients. We create a plan that addresses all of their retirement needs and work with them to navigate any questions they may have and build the retirement they’ve dreamed about. Set up a meeting with us today, and follow us on Facebook, LinkedIn and Twitter.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Rates and Guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.

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