Most people are presented with 2 choices when it comes to retirement planning: a Roth vs. 401k. Now...of course there are more options than this, but mainstream financial professionals are really pushing these two products as the foundation of a sound financial plan.
Think about what you are trying to do when making a choice between various Government plans. Usually, you are attempting to save up enough money so that you can live comfortably in your old age. However, if you plan on saving enough for retirement, then a 401k will likely have you paying back more in taxes than you saved. Even an employer match may not help.
Let's key in on one of the things that you're always told about these plans. Aren't you constantly being told that you'll be in a lower tax bracket when you retire? Think about whether that really makes sense to you. Because, if it's true, then it means you're making less money than when you were working. That may seem fine for some people, but adjust for inflation, and you could be broke when you retire! Is that what you really want?
Your other option, you are told, is the Roth IRA. The Roth is an interesting creature. It gives you the ability to contribute after tax dollars in exchange for tax-free retirement income. Now, there's nothing inherently wrong with that. The problem is not in the tax benefits, but rather the contribution limits. It is typical to find out that you will never be able to save enough money in a Roth.
In both cases the question is which Government retirement plan is the best? However, no one ever considers whether they need to use a qualified plan at all. We just assume that the tax breaks make it worth it (usually, it's not enough). According to DALBARinc.com, most investors earn rates of return that are below inflation! If you're not careful, fees could quickly erode even the modest returns you are getting.
What would be an alternative to using Government sponsored plans? High cash value life insurance would be one example. High cash value insurance can net between 5-6% tax-free over your lifetime, and the cash values are guaranteed. Many major banks and corporations use life insurance as a way to safely conserve money or to build a guaranteed pension. For example, the "king" of cash value insurance, William Ryan of TD BankNorth, has his pension funded by the corporation...his annual premium? $1,260,000.
Think about what you are trying to do when making a choice between various Government plans. Usually, you are attempting to save up enough money so that you can live comfortably in your old age. However, if you plan on saving enough for retirement, then a 401k will likely have you paying back more in taxes than you saved. Even an employer match may not help.
Let's key in on one of the things that you're always told about these plans. Aren't you constantly being told that you'll be in a lower tax bracket when you retire? Think about whether that really makes sense to you. Because, if it's true, then it means you're making less money than when you were working. That may seem fine for some people, but adjust for inflation, and you could be broke when you retire! Is that what you really want?
Your other option, you are told, is the Roth IRA. The Roth is an interesting creature. It gives you the ability to contribute after tax dollars in exchange for tax-free retirement income. Now, there's nothing inherently wrong with that. The problem is not in the tax benefits, but rather the contribution limits. It is typical to find out that you will never be able to save enough money in a Roth.
In both cases the question is which Government retirement plan is the best? However, no one ever considers whether they need to use a qualified plan at all. We just assume that the tax breaks make it worth it (usually, it's not enough). According to DALBARinc.com, most investors earn rates of return that are below inflation! If you're not careful, fees could quickly erode even the modest returns you are getting.
What would be an alternative to using Government sponsored plans? High cash value life insurance would be one example. High cash value insurance can net between 5-6% tax-free over your lifetime, and the cash values are guaranteed. Many major banks and corporations use life insurance as a way to safely conserve money or to build a guaranteed pension. For example, the "king" of cash value insurance, William Ryan of TD BankNorth, has his pension funded by the corporation...his annual premium? $1,260,000.
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