- Reduce your investment fees and expenses, and invest in the most tax-efficient manner possible.
- Don’t miss out on catch-up contribution opportunities.
- Increase your eventual Social Security benefit by waiting to claim as long as possible.
Retirement planning today is not what it used to be.
Decades ago, retirees could simply shift their investments into fixed income, which historically paid higher rates of interest. Today, those same investments likely pay very little. Complicating matters further, we’re all living much longer, so we need to be careful we don’t outlive our money.
Needless to say, comprehensive retirement planning and careful investment management are more important than ever. Here are some easy things you can do on your own to help tip the scales in your favor.
1. Reduce your investment expenses and fees. Just like inflation can eat into your buying power, any costs related to your investments reduce your return. The easiest way to increase what you earn is to simply reduce your costs.
Especially if you’re invested in mutual funds and exchange-traded funds, you’ve probably got hidden fees. Typical costs include the expense ratio for each mutual fund or exchange-traded funds you own. That’s a fee you pay to the manager of that fund. This fee doesn’t appear on your mutual fund statements, so you have to look for it. This fee is in addition to what you pay your financial advisor if you didn’t buy the funds direct.
There can be other fees, too, such as transaction fees and loads. Always take these fees into consideration when choosing mutual funds and ETFs. With so many products out there, it’s likely there is a lower-cost, similar option.
If you use a financial advisor, be sure to always ask if he or she is using the lowest-cost options for each investment in your portfolio. This is critically important, as even a small percentage compounded over time can make a significant difference in the future. And it’s unfortunately far too common for investors to be put into more expensive investments because they pay the broker a bigger commission.
The end result? Even a modest decrease in investment expenses can result in additional yield for you, which keeps your money working harder for you without taking on any additional risk.
2. Use the most tax-efficient manner. As the old adage goes, it’s not what you make, it’s what you keep that matters. A second way to reduce costs, also without increasing your risk, is to reduce the amount of taxes you have to pay. One way to do this is to make sure you are holding investments with the highest potential tax liability in your tax-deferred accounts (such as a 401(k) plan or a traditional IRA).
Conversely, you would then keep investments with low tax loads in your taxable accounts. For example, investments that may generate ordinary income or short-term capital gains may be best held in your tax-deferred accounts. This might include taxable bond investments, where your interest payments are taxed at higher ordinary income rates. Then, you would keep more tax-efficient investments such as tax-free municipal bonds in your taxable accounts. These small adjustments can help increase the portion of your returns you keep, all with no extra risk.
3. Don’t miss out on catch-up contributions. Investing in tax-deferred vehicles is one of the few ways we can turbocharge our investing without extra risk. But our annual contributions are limited. Fortunately, once you are age 50 or beyond, you’re allowed to make additional contributions, which means you can put more into your IRAs, 401(k) plans and other retirement accounts.
There’s also health savings account catch-up contribution allowed once you are 55 or older. All these options allow you to put away more, so you can have more money available to you in retirement. This is a valuable and often underutilized way to boost your retirement savings.
4. Increase your Social Security benefit by waiting. While the future of Social Security may not be certain, for now it’s still a valid income source. The amount of your Social Security check won’t likely be big, but there’s a way you can increase it quite a bit just by delaying it a few years. For every year you delay claiming Social Security past your full retirement age, which is typically 66 or 67, you can get an 8 percent per year increase until you are 70.
If you’re in good health, this is an easy way to bump up your retirement income without additional risk.
Smart retirement planning
In conclusion, there’s nothing easy about retirement planning today. A lot of work goes into building a portfolio that can take you and your loved ones to the finish line.
If you decide to do it yourself, be careful not to take more or less risk than necessary. If you decide to use a professional to help you, you can definitely relax a bit, but not too much.
Remember, it’s your money and you need to always watch it closely. Don’t put things on auto-pilot. Instead, stay involved, ask questions and always monitor all your financial statements. Your future is too important not to.
5. RETIREMENT INVESTORS looking to boost income have an opportunity that probably doesn’t come to mind right away – trading in the options market with strategies like writing covered calls.
It sounds like blasphemy. After all, the standard advice is to play it pretty safe in retirement accounts like IRAs, and options would seem to violate all that. For every winning options bet, someone loses – likely the player with less experience. Most options contracts expire worthless, and since they have a fixed expiration date you can’t just wait for things to turn around like with stocks and bonds.
But don’t write off options in IRAs too soon. After all, many small investors have more money in their retirement accounts than in taxable accounts, so if options appeal to them, the IRAs are where the money is.
“”Yes, you can trade options in IRAs,” says Mike Scanlin, CEO of Born To Sell, an online service for covered-call traders. “Covered calls are by far the most common strategy.”
Scanlin’s customers are typically between 40 and 70 and try to use covered calls to earn 1 to 2 percent a month on the securities involved, he says.
“Covered calls can also be a great way to get a little extra yield from an asset that might be declining but that you feel confident holding on to for the longer term,” says Tom Stevens, owner of RCN Wealth Builders Partners in Seattle.
“”It’s not very common for individual investors to trade options within an IRA,” Stevens says, though he trades options for his clients’ retirement accounts. “”Most investors take a long-term view of IRA assets, a view which we support, and don’t actively trade [in their IRAs]. Options inside an IRA are best suited to a disciplined, active investor that can monitor positions regularly.”
Stock and Options Trading as a Side Hustle
Pulling money out of the stock market on a regular basis is very hard. I do it and so do many others but we are the exception not the rule. Stock trading takes a lot of practice and skill that most people do not have the patience or discipline to learn. I started trading in 2014 with $25,000 and it took me three years of trading before I finally could say I was consistent trader. Sure, I made $20,000 in the first 6 months but then I lost half of that in the second 6 months. I realized that winning trades are not that hard – the trick is to not lose it all plus more. It is primarly an emotional game.
The crazy odds are against us as traders. Something like 80% of new stock traders fail within the first year. This is horrendous odds, especially when you consider many lose their entire accounts! Here is the thing though – this is not much different from any other business venture! If you start a a restaraunt, you are likely to fail and be left with massive business loan debt. So is stock trading really that bad? Really when you consider it, stock trading does not require any debt, has no overhead and has a similar success rate to other businesses. It may well be one of the best business ideas to start!
If you are considering start stock or options trading as a side hustle be warned – it is extremely difficult. It will test you emotionally as well as financially. I highly recommend finding a good mentor so that you have some guidance. This could save you a lot of money. Sometimes you can pay for stock alerts or eBooks that will really help you learn. If you are looking for an eBook that can teach you some great options trading strategies, I highly recommend the Option Profit Accelerator book by a millionaire options trader called Jeff Bishop. The books is 100% free and Jeff is one of the best options traders in the world. He runs a stock and options alert service as well (RagingBull stock reviews). Sometimes paying for some stock alerts that tell you when to buy and sell can be worth it. They can teach you a strategy and fast track your learning curve.
If it is done properly, stock trading can be a very lucrative side hustle. You can buy a stock and hold it for a few days while it increases in price then sell it for a profit. It is a fantastic way to work from home and make money passively. Don’t underestimate how difficult it is and how much work and learning is required to be a consistently profitable trader!
Failure is only the opportunity to begin again, this time more intelligently.
– Henry Ford (1863-1947)
Ask yourself this question: ‘Will this matter a year from now?’
–Richard Carlson, American psychotherapist and author of Don’t Sweat the Small Stuff
A failure is not always a mistake. It may simply be the best one can do under the circumstances. The real mistake is to stop trying.
–B.F. Skinner (1904-1990)
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