In a recent submission for their Squared Away blog, the Center for Retirement Research at Boston College addressed the common concern of not having enough money for retirement, but approached the issue from an interesting perspective. Although the notion would seem to contradict logic, the article astutely points out that lower income throughout working life needn’t necessarily jeopardize one’s retirement. Instead, the key lies in finding a way to uphold your standard of living by replacing your income with social security benefits and your retirement savings. Some may have saved enough to live comfortably through retirement, but others may struggle to make ends meet. According to the article, 56% of low-income households fail to maintain their standards of living once they leave the workforce.
Income would seem to be a critical factor here (what better way to replace income than with other income?). Positive cash flow can be easier to achieve with alternative IRA investments but difficult to find on Wall Street. Stocks that pay dividends are popular choices among income investors, but a relatively generous dividend yield of 3% on a $250,000 portfolio would only net $7,500 per year. Capital gains could add to these earnings, but you would have to liquidate positions and reduce your dividend earning potential to enjoy them. Furthermore, as today’s stock market highlights, capital losses would be a persistent threat as well.
Alternative investment options, on the other hand, can generate returns in any market without forcing you to sell off your assets. For instance, if you hold a secured or unsecured promissory note in a self-directed IRA, your plan can collect interest payments while maintaining its principal for future transactions. By this same token, rental property in an IRA can provide consistent retirement income and the property itself can be sold at any time. In both cases, you can initiate cash distributions at your leisure.
These are just two examples among the myriad of ways you can take control of your retirement and supplement your social security benefits. Your quality of life was squarely in your hands when you had a career; the same can be true once you reach retirement. For more information about self-directed IRAs or alternative asset investing, please don’t hesitate to contact New Direction IRA.