Low-cost Accounts for Your Retirement Funds

Since 2020, life expectancy rates have increased by about .08% annually. As of 2023, life expectancy rates, on average, hover around 79 years old. We are living longer into retirement and finding the appropriate, low-cost option to save for retirement is very important. For example, a savings bank account is a good option for short-term savings goals, while an IRA can help you plan for retirement.

IRAs can complement federal benefits programs like Social Security. These social programs can help cover essential expenses that include monthly housing payments, grocery bills, and insurance premiums. What about personal income to do the things you love, or get a haircut?

You can use Individual Retirement Accounts (IRAs) to finance leisure activities. Examples include vacations, dining out, or taking up a new hobby. You can ensure your golden years remain blissful beyond Wednesday’s senior discount days. Let’s explore some options.

Low-Cost Strategies for Retirement Planning

Step one in developing a low-cost strategy for retirement planning is figuring out how to maximize your Social Security benefits. 

Your total retirement income covers nearly half to three-fourths of “floor” expenditures (basic cost of living necessities). The “floor” income amount should cover annual or monthly spending for fixed expenses on goods and services like housing, food, utilities, and transportation.

Overall, Social Security provides retirees with great benefits. Payments come in regular, monthly installments with a lifetime guarantee to your deposit account. The amount you receive is adjusted for inflation, so you don’t lose buying power. And they’re tax-advantaged with lesser federal taxes and are, in many cases, exempt from state taxes.

Some important questions to consider are:

Can social programs cover the Alaskan cruise you've been dreaming of? Or a family reunion, wedding, or graduation? 

Could there be any major or unexpected expenses not covered by a home equity loan, Social Security, or Medicare? If so, how can we prepare for them?

What about global economic crises, like the 2008 Great Recession, that many accounts never recovered from? As you can see, strategic retirement planning is essential to the future of your finances. Finding a low-cost strategy to prepare for life events — the good and the bad — matters when securing your financial freedom.

Low-Income Retirement Planning

Some people may reach retirement age and find their accounts don’t have enough savings. A year ago, it was estimated that 15 million Americans over 65 live below the poverty level of $25,760 annually. Economic insecurity for seniors can result in inadequate nutrition or funding to cover healthcare costs.

On average, retirees receive $1,437.55 monthly from Social Security benefits. Annually, that is only $17,250 to compare with the poverty level above. This income limitation can present challenges in their daily lives.
Additionally, while Medicare is available to help provide healthcare coverage and assist with associated costs it may not fully cover every possible expense. 

Medicaid, food stamps, and Supplemental Security Income (SSI) are other public welfare programs intended to assist all people living below the poverty threshold to cover basic needs like food, clothing, and shelter. Some tax relief programs may be applied to property taxes, car registration fees, and waste disposal fees to provide some mitigation.

However, these programs are only meant to cover the bare minimum. They don’t necessarily support a certain quality of life that you might expect or be used to. Let’s look further at how investing can help secure your future finances, overall well-being, and peace of mind.

Low-Fee Retirement Plan Options

An IRA is a great way to save for retirement at a low cost. These accounts are all tax-advantaged and can help you save for retirement by growing the assets held in the account. There are several options depending on if you are self-employed or a W-2 employee. 

The best way to learn about these options is to expand your financial literacy to then build your investment portfolio. That’s why investing in an IRA with low fees is crucial to building wealth for your retirement strategy. 

These accounts can also be self-directed and hold alternative investments. Knowing what to look for can also help you save when comparing different financial institutions, the types of accounts they offer, and their associated fees.

Traditional IRA

For 2023, Traditional IRAs allow you to make contributions up to $6,500 annually or $7,500 if you are 50 or older and would like to make catch-up contributions. Contributions to these retirement accounts are tax-deductible and your money grows tax-deferred. 

Common investments in these accounts can include CDs, savings bonds, stocks, bonds, and mutual funds. Taxes are collected when withdrawals are made from this account type. 

Roth IRA

A Roth IRA also has tax-advantaged benefits. But, unlike a conventional or Traditional IRA, contributions are not tax deductible. The advantage of this is that it allows for tax-free withdrawals in retirement.

Your retirement funds will grow tax-free in the account to maximize your return on investment. Stocks, bonds, and mutual funds are common assets held in a Roth IRA. This account type may work best for investors who think they’ll be in a higher tax bracket at retirement age.

Self-Directed IRA

Self-directed IRAs are a great option for investors with expertise a particular asset or those that want more access to alternative assets. As an investor, you get to pick and choose from investments that provide alternatives to stocks, bonds, and mutual funds. 

Self-directed IRA investment strategies can produce higher returns compared to the investment accounts that commonly hold the traditional assets referenced above.

This is important. Many types of assets can be held in an IRA. However, many larger brokerages are not willing to allow clients to truly diversify their retirement portfolio in alternative investments.

Precious metals, cryptocurrencies, and even real estate can all be held in a self-directed IRA. You need a reliable custodian to accurately record keep assets for tax purposes. Additionally, they help you understand how to comply with all IRS tax code regulations.

Roth IRAs, Traditional IRAs, and retirement accounts that are available to small business owners or self-employed individuals like the Solo 401(k), SEP, and SIMPLE can be self-directed.

Solo 401(k), SEP, and SIMPLE

Solo 401(k)s were created for business owners without employees. The plan can, however, cover the business owner(s) and their spouse. These plans offer self-direction and higher contribution limits. This makes them ideal for large real estate transactions or other larger investments.

SIMPLE and SEP IRAs offer business owners and the self-employed another chance to save for retirement. These accounts provide an excellent opportunity to plan for the future. If you have employees, these accounts may be an option.

Other Low-Cost Strategies for Retirement

It’s never too late to start a savings plan for retirement. The sooner, the better! You don't need a lot of money to start investing. Even a small amount can grow with time if you keep investing regularly and make wise decisions.

Here are some tips:

Contribute What You Can, As Early as You Can

An IRA contribution refers to the cash deposit into an IRA made from an individual's earned income.  Depending on the type of account you are contributing to taxes may be taken out before the contribution is made (Roth) or you may make the contribution before taxes are taken out and, in turn, deduct the contributions from your annual income on your taxes (Traditional).

This could be the difference between retiring earlier with financial security or retiring at any age with financial insecurity.

Real Estate IRAs

Real Estate IRAs, are self-directed IRAs that hold real estate assets. These accounts are another great way to save for retirement, especially if you know the market well. Direct purchasing is the most common or popular method for this investment type. For smaller IRAs, partnering, leveraging, and opening a Checkbook control IRA LLC are investment options available.

Real estate IRA investment options include single-family rental units, multi-family properties, commercial properties, mortgage notes, land, international properties, or tax liens.

A real estate IRA shares the same rules as all other IRAs. For example, a real estate investment in an IRA cannot benefit you or your spouse, directly or indirectly before retirement. Also, you cannot claim losses in your income tax return. The investment is treated like any other investment in an IRA. See our IRS rules and regulations on disqualified persons and prohibited transactions.

Get Help From An Advisor

A financial advisor can help you devise a strategy to build your wealth sustainably. They can help you understand how to meet your financial goals and keep you on track. Alternatively, they can also let you know if your portfolio isn’t performing well and how to improve it.

Lastly, a financial advisor can also help you with your asset allocation to avoid bad investments. If you don’t feel completely sure about the investment choices you’re making or a major life change occurs, your advisor has your back.

Beware of Fees

Fees can eat into your retirement portfolio growth, preventing you from reaching your retirement goals. High expense ratios can gradually consume your hard-earned retirement savings. Always do your due diligence by comparing fees before choosing your IRA custodian or provider.

Custodial Fees

Custodial fees may be paid yearly or monthly to the custodian or provider for maintaining the account. These can include administration fees, special asset fees, transaction fees, service fees, etc. Essentially, these are the fees charged to maintain your account.

Transaction Fees

Transaction fees are typically charged each time you buy or sell an asset in your retirement account. Transaction fees vary depending on the service provided and can include wire transfers, establishing the account, or the purchase, sale, or exchange of an asset. Depending on how frequently you transact, these can add up quickly.

All Inclusive Fees

Every little fee adds up. Be aware of hidden fees such as annuity fees, rollover fees, commission fees and mutual fund expense ratios, and "all inclusive" fees. Always read the terms and conditions in the fine print to be vigilant that these fees won’t drain your account. Ask for an IRA fee schedule and review carefully. 

Let IRAR Help You Find a Retirement Plan

Sometimes, taking the first step is the hardest step. Finding your perfect low-fee retirement plan can start with a simple consultation. We aim to empower investors to build wealth through alternative investments at a lower cost.

We have a fee structure that can help you save up to 50% compared to other custodians. This is one way we can help you save money. Our annual fee is per asset and not based on the value of your account.

Let us help you find a better, less expensive way to save for retirement without sacrificing the quality of service. Give us a call at 888-322-6534.