How To Build Your Own Retirement Plan

The decision to work for yourself gives you a great amount of agency. Instead of relying on the decision-makers in someone else’s business, you can choose how you want to run things.

You decide how your work day looks, when to take time off, and when to retire. However, this also means that you need to make plans that would otherwise be taken care of by a company.

A retirement plan is one such matter. Typical employment packages include a 401(k), which automatically takes a portion of your income to save for retirement. Unfortunately, many self-employed people do not know how to do this for themselves and tend to put it off indefinitely. This can lead to major financial issues down the line, causing you to continue working beyond retirement age.

The good news is that building your own retirement plan is not too difficult. With a SIMPLE IRA or a similar alternative, you can save towards retirement as effectively as you would when employed with a 401(k).

To understand how to build your own retirement plan, it is important that we know what goes into a good retirement fund.

Untaxed Dollars

One of the benefits of retirement plans like the 401(k) is that the portion taken from your monthly salary is untaxed. In other words, it is deducted from your salary before tax is calculated, which ensures you get as much out of your salary as possible.

This is more for your current benefit than for the benefit of your retirement package. Ultimately, your retirement fund will be taxed when you withdraw it at retirement age. As such, a plan that collects untaxed income does not save you money in the long run. If you are happy with receiving a smaller monthly salary so that your retirement fund is untaxed in the future, you are not losing out.

Common retirement plans provide the benefit of pre-tax deductions, but if you would rather invest your money to build greater wealth, you do not need to worry too much about losing this benefit.

Consistency

Summerset recommends that retirees enjoy their lives to the fullest in a beautiful, happy, peaceful, and safe living environment. You can achieve this goal when you reach your retirement years if you have enough savings. Therefore, it’s a must to have a retirement plan. Otherwise, you might financially struggle, affecting your health and ultimate happiness.

A huge benefit of a retirement plan is that you make monthly contributions. No matter what is going on in your life, your retirement plan grows as you get closer to retirement. Few people have the kind of discipline required to reach that level of consistency.

As such, getting a regular 401(k), a SIMPLE IRA, or any other standardized retirement fund is worthwhile. Technically, you could grow your money more effectively by choosing savvy investments and making monthly contributions. But there is a relatively high possibility that you will skip months or even take long “breaks” when you feel strapped for cash.

Consider getting a standardised retirement plan for the sake of consistency, rather than creating your own plan.

Maximum Contributions

But what if you want to go the extra mile to prepare for retirement? Standard retirement plans come with contribution limits. These limits prevent you from investing too high a proportion of your salary into your retirement plan. This does not necessarily mean you need to limit your retirement savings to these contributions.

If you do want to save beyond what your retirement plan allows, you can open up another fund or investment, into which you put your extra earnings. This can be a great opportunity to try your hand at growing your money through shares or trading.

For instance, you can invest in real estate properties. This is one of the most lucrative and stable long-term investments, providing many retirees with passive income through rentals. Gold and precious metals are great investments too. The same holds with stocks and bonds. Moreover, you can also find modern investments like cryptocurrencies very promising.

With the overwhelming investment options available, don’t forget to have personal savings. A decent cash-ready amount is crucial so you have something to pull out during emergencies. While you want to grow your wealth quickly with investments, most entail long years of waiting.

The reality is that while saving for retirement is important, it should not be your sole consideration. Many people are overly cautious, and although they may end up with the retirement fund of their dreams, they may not get to make use of it. There is simply no way to guarantee that your ideal future will come to pass. By focusing so heavily on retirement, you can forget to make the most of the present.

Before you start funnelling all of your savings into retirement funds, ask yourself what you would do with this extra cash if you were to use it now or in the near future. Choosing to take a dream vacation with extra funds is not irresponsible. On the contrary, it is the only way you can guarantee that you actually make the most of your income.

Strike a good balance between your savings and investments. Talk to a financial advisor or estate lawyer, especially if you have enormous wealth. These experts can help you with proper wealth management, allowing you to create a will, trust, living directives, and other legal documents necessary for retirement preparation.

Should You Build Your Own Retirement Plan?

The basic factors that go into a standard retirement plan are your untaxed dollars, consistent contributions, and a contributions ceiling. You can do all of this yourself, with various funds available for investments and savings. However, you will get all the benefits necessary from the various retirement plans available for self-employed people.

A SIMPLE IRA or a Solo 401(k) ensures you start saving responsibly towards retirement. They are easy to apply for and can sit at the back of your mind rather than being a constant focus. Saving for retirement is important but should not be your sole priority. Taking a conventional route is a great way of planning for the future without neglecting the present.

Reference: Types of Retirement Plans