Retirement plans have changed. Pensions and Social Security are no longer the only pillars of a sound retirement as new investment options become available. As time goes on, companies, employees and potential retirees have different options that have changed the retirement game.
These plans are now individual issues; future retirees will likely need to rely more on personal savings to plan for their golden years. Many who are self-employed or lack a company plan look for ways to manage their retirement finances on their own, and self-directed investing plans are available for anyone willing to put in the work. These are the five pillars of a sound self-directed investment plan.
1. Self-Reliant Planning
The first pillar of a self-directed investment plan is self-reliant planning. Discover whether directing your own retirement finances is feasible. This type of plan is not for everyone. It requires patience, thorough research and industry knowledge. Without these crucial pieces and because of the considerable freedom to make mistakes, it can end badly for the unprepared. As a self-directed investor, you are responsible for your own retirement plan and everything that goes into it. There are nuances behind a successful plan. Without the proper knowledge, you can easily misinterpret rules or make a prohibited mistake that could be costly. Those who wish to take on the task should have a well-constructed plan of action.
2. Selecting Your Growth
The second pillar of self-directed planning is the account itself. As stated previously, a thorough retirement strategy is imperative. How do you want to build your plan? How do you anticipate it will grow? There are several self-directed options to consider: individual retirement accounts, 401(k) plans and company plans like SIMPLE IRAs and 401(k)s. The plan you select will also depend on the type of account you are looking for. Are you a small business owner looking to provide your employees with a retirement plan? Or are you self-employed and looking to put money away for your nest egg? Considering the amount of retirement savings you may need and how many individuals you would like to cover, the type of plan you select will determine the overall growth of your account.
Additionally, you can decide how your plan grows. Depending on whether you choose a traditional or a Roth plan, your income can grow tax-deferred or tax-free. To form a comprehensive plan, future account holders must decide what their personal needs and goals are, and how they’d like them to grow. Though this option provides many choices, it’s important to be decisive upfront.
3. Setting Up The Pieces
The third pillar of sound self-directed planning is comprised of the pieces that make up the account. What do you need for the account to grow? With your plan and the growth decided, the next step is to choose the assets that will fill your retirement plan. It’s possible to select from traditional investments, like stocks and bonds, and less traditional options, such as precious metals or private lending. Whatever the case, these assets will be important to your account’s long-term growth.
An additional piece to consider is the IRS-mandated IRA custodian. All self-directed accounts must be overseen by a certified custodian, so account holders must plan for this, as well. With an IRA custodian comes additional fees; this should be factored into the initial plan goals.
4. Maintaining Your Plan
As you finish setting up your pieces, it’s time for the fourth pillar crucial to sound self-directed planning: plan maintenance. Self-directed plans need constant upkeep. Self-reliant retirement plans require account owners to keep up with their investments and assets. These are not “set it and forget it” investments. To keep a constant flow of revenue, this pillar needs to be watched and updated. If investments are not growing, the plan needs to be altered. Fund allocation may need to be readjusted. All these steps are important for successful savings.
Additionally, account holders are responsible for the diversity of their portfolio, the setup, fund allocation and upkeep throughout the life of the account. Accounts must be set up correctly and monitored, and any transaction must be filtered through a custodian. To keep revenue generating, regular maintenance is needed.
5. Performing Due Diligence
The fifth and final pillar of sound self-directed investing is due diligence. As the sole owner of the account, investors are responsible for the outcome. They direct the funds and the growth and determine how they want them to grow. The hands-on nature of a self-directed investment plan makes it very difficult if you aren’t prepared with the proper knowledge or patience.
Planning involves more than putting together a portfolio and funding it. This pillar represents the additional information required: knowing what’s prohibited, updating your custodian, preparing for fees and possible investment failures, knowing the ins and outs of the assets and keeping a diverse portfolio. Account holders should be aware of basic expenses, fees, custodial reporting and how to focus their long-term goals to keep investments in the green.
The Foundation Of Sound Retirement Planning
Planning for retirement can be difficult, but thankfully, there are options. Self-directed investing can be a lot of work, and it is not for everyone. But with the proper pillars and the right education, it is possible to build a successful retirement fund. Understanding what’s available is a key step toward planning your personal retirement savings. Do the research and find the plan that works best for you.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.