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It took me a long time to finally start a retirement fund. For years, I was too stubborn to put money aside now for life later on, and instead wanted to spend my paychecks on bills, rent, activities, and whatever else I wanted that would benefit me now and not in the future. All of that changed when I turned 30 and realized that saving for retirement is essential because it allows for some financial freedom during the years of your life when work takes a backseat.
I opened up a SEP IRA and began making little contributions every month. Years later, it's become something I take even more seriously, budget for every month, and set goals for every year.
Recently, I began to wonder if I'm doing enough. Are there other ways I should be saving now for a financially healthy retirement later on? Are there tricks, secrets, or strategies I should know? That's why I reached out to financial experts who work with millionaires and billionaires to see what kind of retirement strategies they share with their clients.
1. Take advantage of Roth IRAsRoth IRAs had their day in the news a couple months ago when billionaire PayPay founder Peter Thiel's Roth IRA strategy took center stage.
While most of us won't earn billions in a Roth like Thiel has, Jeffrey Carbone, a financial planner who works with millionaires, says that Roth IRAs can be an essential part of a person's retirement plan, even if you fall outside their income limits. (In 2021, your modified adjusted gross income as a single person must be between $125,000 and $140,000 to qualify. Married couples filing jointly must have a MAGI of between $198,000 and $208,000.)
"Roth IRA strategies allow individuals to pay the taxes on money today but allow for the growth to be deferred and become tax-free in the future," says Carbone. "There are income requirements in terms of contributing to the Roth IRA, so many higher-income earners may not qualify," but you can use what's called a "backdoor Roth IRA" strategy to get money into one of these accounts where it can grow tax-free.
Says Carbone, "There are additional items to be aware of, such as having other IRA accounts, but for those individuals or spouses that do not have retirement accounts, it's a no-brainer."
2. Use a health savings accountAnother strategy Carbone recommends is taking advantage of a health savings account, but not only for the reasons you'd think.
"Take advantage of HSAs — not for the ability to help pay for medical costs today, but the ability to deposit dollars into the HSA account and to have the dollars remain tax-deferred and used for future medical costs or to even help with one's retirement income," says Carbone.
With a health savings account, you deposit pre-tax dollars that then grow tax-free if invested. If you use the money for qualified healthcare expenses, the money is never taxed.
3. Have a goalWhile it might sound obvious, some people, like myself, don't have much of a retirement plan except to contribute a set amount of cash into their fund every month. Stephen Landersman, a financial planner whose clientele includes mass-affluent and high-net-worth families, says the best first step is to have a written plan.
"It is the step people most often skip in the process of planning for their retirement. In fact, most of my high-net-worth clients who built their fortune instead of inheriting it had a plan from very early on. It's what made them successful in business and when they transition into retirement. If you don't have a target to aim at, you can't hit it. Goals are the most important part of planning," says Landersman.
4. Work with a flat-fee advisorI'm not at the point where my financial portfolio needs to be looked at or managed by a financial advisor. I'm still getting basic strategies in place to grow my retirement fund. But when the time comes, Anthony Watson, a financial planner who works with clients who have a minimum portfolio of $1 million, recommends finding an advisor who offers a flat rate so you can save money in fees that can easily get costly.
Says Watson, "Financial advisors can add value for retirees in many ways, but the price a retiree pays for that value can vary greatly. Some advisors charge commissions, some charge a percentage of assets under management, and some a flat fee."
You may find that an advisor who charges a percentage of assets under management ends up costing less than a flat-rate advisor. Do the math to find out what makes the most sense for you. An advisor who works on commission, however, is not the right choice in most cases since they're more likely to make recommendations for products that earn them kickbacks and not with your best interests in mind.
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