Since the beginning of employment, every employee dreams of a financially stress-free retirement.
What will retirement look like in the future of Millennials?
Mainly for the Millennial generation, an early retirement coupled with enough funds is a top priority.
A survey carried out in the United States by research team hired by Ramsey Solutions shows that 58 percent of people born between 1980 and 2000 are actively replenishing their 401(K) accounts.
The research also showed that 38 to 40 percent of the Millennial generation could roughly estimate when and how much they will need during retirement.
However, savings accounts for almost 60 percent of them are yet to hit the $10,000 mark.
Millennials have the advantage
Thanks to the available financial technology, the Millennial generation can transfer funds at the touch of a button.
Millennials have figured out a solution to their savings problems. Top of the list includes paying off student loans and other debts as quickly as possible, having a contingency fund and creating a workable budget.
However, implementing the said solutions is being challenged enormously by the rising cost of living and accumulating credit card and mortgage debts.
Why are IRA’s important and how do they work?
Individual Retirement Accounts, IRA, are widespread among early generation employees.
Millennials are starting to embrace other “evolved” retirement accounts to further diversify their retirement portfolios.
An example of this account is the self-directed individual retirement accounts. So how exactly does a self-directed IRA work?
An interested individual is required to open an account, deposit funds directly or transfer funds from an already existing IRA or 401(K), then choose a preferred alternative investment(s).
Individual Retirement accounts have a designated custodian who manages the deposited funds.
Most of them invest in stocks, bonds or mutual funds. Self-directed accounts transfer all investment decisions from the account’s custodian to the owner of the money.
The owner can choose to pick an asset to invest in from a pool of allowed investments such as real estate, limited partnerships, precious metals, notes, with other private tax benefits.
However, only the custodian can execute these trades on behalf of the owner.
The custodian is also required to make records of all trades regarding all the executed decisions.
Self-directed accounts suffer higher risks, but, diversifying your portfolio reduces these risks significantly and will pay off well during retirement.
What to consider about an IRA?
Before opening a self-directed account, it’s important to consider a couple of factors.
First, ensure that the IRA custodian is trustworthy and reputable. You do not want to lose all your life savings to a con artist.
Secondly, avoid non-allowable assets. Internal Revenue Service has a list of non-allowable holdings with severe tax consequences. The list is available to the IRA custodians.
However, beyond this list are high growth assets that have better annual returns than stocks, bonds or mutual funds.
Moreover, it’s important to note that regardless of the IRA custodian, an assets’ due diligence rests entirely on the owner of the funds.
While self-directed accounts have the potential for growth, high-risk investments could easily wipe off an account. Also, note that self-directed IRA’s do not offer any tax or investment advice, all they do is execute trades.
With newer financial technology innovations and a saving culture, it’s quite evident that the Millennial generation has a more significant opportunity to achieve retirement goals.
However, Millennials have to take full control of their finances.
Even the slightest drive to spend less and save consistently could change the entire employee retirement status for this and the future generations.