Most people know about one, maybe two choices when it comes to retirement planning. The most common is an individual 401k. The other is a Roth IRA. There are more Government sponsored plans, but these are the two most common.
If you are making a decision between a Roth and a 401(k) plan, consider what your goal is in saving money for your future. If you are trying to accumulate enough money to live on, a 401(k) may not be the best choice. That’s because the better you do, the more in taxes you pay. In fact, you may end up paying back more in taxes than you’ve saved.
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?
Of course, the other most popular option is the Roth. This plan works a little differently than a traditional qualified plan. You contribute after tax dollars and when you retire you don’t have to pay tax on any of the gains. It’s a good deal, except for one thing. You can’t contribute anywhere near the amount you’ll probably need to save. This can be problematic since most people expect unrealistic rates of return on their investments…the result will be a lower than necessary savings rate.
The debate is really about which Government retirement plan is the best? But, the question ought to be: do you need a Government sponsored retirement plan in the first place? According to DALBARinc.com, most investors average less than 6% over their lifetime. In qualified retirement plans, you may be paying an extra fee on top of that (especially for 401(k) plans).
So, what can you do instead? Many families and businesses have turned to private insurance contracts. High cash value life insurance can yield between 5-6% tax-free over your lifetime, the cash values are guaranteed, and the death benefit advances your future expected savings to your family if you are unable to complete your plan due to death regardless of how much cash has actually been built inside the plan.
