Retirement Dreams Disappear With 401(k)s

As more and more people have their lives devastated by their diminishing 401(k)s, more and more reports like this 60 Minutes piece will be produced. The havoc that Wall Street has wrought in the name of profit is beyond scandalous and borderline criminal. It's only a matter of time until the current retirement sytsem is radically altered to do what it was initially designed to do....help people save for retirement! Do yourself a favor and watch this 10 minute segment on CBS's website. You could also read the transcript here.

An entire generation's retirement dreams have been wrecked due to their blind faith in the stock market. And why wouldn't they? Brilliant marketing campaigns convinced them equities were the best way to grow their retirement accounts. Then the retirement accounts themselves (IRA's and 401k's) were structured so stocks and mutual funds were the ONLY investments allowed. Starting in the '80s, TRILLIONS of post-pension dollars were pumped into the market via mutual funds and IPO, tech-stock mania. The market responded with the best 15 year run in it's history averaging 17% year-over-year growth. A generation was hooked, line and sinker.

But then the tech bubble emphatically popped losing 35% in early 1999. That was followed 8 years later by last year's 43% clubbing. Will the market recover? Probably, but to what extent?

What if the next generation learns from their parent's and peer's financial decisions and become more savvy to the pitfalls of stock market investing? What if they start building diversified retirement plans that aren't predominantly invested in the market? What if trillions of dollars are permanently moved out of the market and invested in commodities, real estate, cash or other investments? Warren Buffet predicts the growth that happened towards the end of the 20th century was the heyday of Wall Street and the chances of a repeat performance are slim.

I believe our current unregulated, falsely reported, hedged and ponzi schemed system has permanently soiled Wall Street's reputation for an entire generation. I'm sure one on them. Without the mass capital, hidden fees and blind faith necessary to build their financial house of cards, Wall Street will have a tough time reproducing last century's results.

Do yourself a favor NOW and begin building a better retirement portfolio. Don't rely on the stock market to be the sole provider of your retirement dreams. True diversification is possible through self directed retirement accounts that allow you to spread your risk over multiple investment classes. And more importantly, they can prevent your retirement from being wiped out or delayed by an unexpected bear.

Change in Employment = Change in Retirement Strategy

The most unfortunate consequence of the current recession is the incredible loss of jobs. Since it began in December 2007, 5.1 million jobs have been lost, with almost two-thirds (3.3 million) of the decrease occurring in the last 5 months. While having to look for a new job means making a lot of hard decisions, what to do with your existing 401k should not be one them.

If your entire retirement portfolio has been invested in the stock market, now's the time to make a change...for the better. Roll your 401k from your previous employer to a self directed IRA. A 401k to IRA rollover is very easy to accomplish and will allow you to finally diversify your retirement savings account. Here's why:

1. True Diversification: When your portfolio is diversified, it can provide consistent performance in a range of economic conditions. The only way to truly diversify your retirement portfolio is with a self directed retirement account.
2. More Investment Choices: A self directed IRA works like your current 401k with one major difference. You're allowed to invest in anything that is legal by the letter of the law and not limited to the investments that your current custodian profits from.
   
3. Real Estate Is Proven: A self directed IRA allows you to use tax-sheltered dollars to purchase real estate with no withdrawal penalties. Once converted, you can own a range of real estate investments including commercial, multi-family, raw land, trust deeds and tax liens.
4. Gain Control: With a retirement portfolio purely invested into mutual funds, control lies in the hands of those that manage it. How have they been doing? Not well. Check out this story from the Chicago Tribune and read how Congress is finally calling these guys out to the mat. You and you alone should be responsible for your retirement. Don't leave it in the hands of someone you don't know.
   
5. Comprehensive Retirement Planning: Retirement planning should be a comprehensive approach covering the financial planning process including insurance planning, investment planning, tax planning, planning for college, employee benefits, and estate planning, as well as retirement planning. If you've ever reached out to your current Wall Street custodian and asked for guidance, they probably only offered advice on the products they sold. With a self directed IRA, you can get comprehensive advice from a qualified Certified Financial Planner.
   
6. Beneficiary Advantages: Named beneficiaries of an IRA other than a spouse (like your children or grandchildren) have tax advantages not available with 401k plans. Named beneficiaries of an IRA are able to stretch the required distribution over their life expectancy deferring income tax and allowing funds to continue to compound exponentially. Beneficiaries of 401ks do not have this option.

Losing your job is always tough and the silver linings are hard to see. But what you do with your retirement plan right now could drastically alter when and how you retire. Use the time you have to research the self directed world and possible investment scenarios. It may end up being a blessing in disguise.

If Only I Had More Time

As I speak with folks about investing in real estate using their IRAs, I hear one common concern, “I love the idea of self-directing my retirement money and investing in real estate but I just don’t have the time to do it.”

We understand and appreciate this sentiment which is one of the main reasons we started Freedom Growth. Americans are extremely busy and have little time left over after family and work commitments to plan for their retirements. It’s true that self-directing a retirement portfolio does requires some time and effort but it’s not nearly as much as you might think.

Real estate investors short on time have access to a free source of information, research, and advice. These are the services provided by your real estate broker. Real estate brokers representing investors as buyers are typically paid by the seller so they don't charge you a dime. It’s important to contact a broker who specializes in IRA real estate investing and tell him or her what results you’re looking for. If the broker does not already know of specific real estate investments that fit your needs, he or she can probably find one or more that do. This means you initially spend 20 – 30 minutes with a broker discussing your situation and needs.

The broker then finds opportunities that you might like and presents them in a clear, concise way. With real estate investing, the focus is not on how cute the property is, but on hard numbers, especially the ROI (return on investment). Your broker probably has opportunities for you but he or she might also need to find others which might take a few days or weeks. Ideally, your broker presents you a comparison of the various opportunities allowing you to quickly and easily make a decision. Done properly, this only takes a few hours of your time.

Now it’s time to make the investment. Documents are drawn and signed. In a matter of days (sometimes weeks,) the deal closes and the IRA now owns a real estate asset. You have diversified your retirement savings and paid nothing for the services provided by your broker. I challenge anyone to find a better deal.

So don't let time be an obstacle to building a better retirement plan. An IRA real estate specialist will gladly minimize your time involvement and give you great real estate investment advice...for free!