Planning for a Longer Retirement

March 19, 2014

As far as the average lifespan goes, men have always been at a huge disadvantage. If you were born in 1967, males were to live until age 67, and females to more than 74, at least 8 additional unfair years.  However, 40 years later, males have closed the gap with an expected life span of 76 years, as females live to 80.5 years old, on average according to a Lancet article. But those nine extra years come at a huge cost: We now have to pay for eight more years of retirement, with women adding six years to their needs.

While Social Security continues to be underfunded, there are signs that the aging population has realized the fact that, as far as retirement is concerned, they will not be able to rely on the government.  More than 38% of US households now have IRAs, according to the Investment Company Institute. Combined with employer plans, more than 80% of households have accumulated some retirement funds.

The $5.7 trillion in IRAs today represent about $124,000 per household that has an IRA. Yet, IRAs tend to be more heavily used by older people (45% of those aged 55-64) and also, not surprisingly, used by the wealthier households (62% for those earning more than $100,000 per year).

Self-directed IRAs represent only a small portion of the $5.7 trillion, as little as 2% or $100 billion, according to the North American Securities Administrator Institute. If it’s such a great idea, why don’t more people use self-direction? The answer is simple: Self-directed IRAs are not meant for the majority of investors. If you listen to conventional financial advisors, many would caution against making your own investments in anything other than publicly offered securities. Most advisors would make the following points:

• They are dangerous – you have to take the time to understand the investment and properly weigh the risk and the reward
• It takes too much time – not just in studying the investments, but by staying involved throughout the lifecycle of the investment once it’s made
• Investments may not be sufficiently diversified – true, if you invest in only one asset, but self-direction may also significantly expand your options
• Too many choices – the drawback of choice is that it breeds complexity, and some investors are paralyzed by the myriad options
• You may not be able to understand your investments – unless you understand your investments, with or without a financial adviser, you are just gambling
• You have to stay involved – higher net worth individuals often get phone calls from their brokers when events happen that may be critical to their holdings, but self-directed IRA investors must stay aware of those issues on their own
• You advisor is also thinking, but not saying, “My brokerage won’t benefit” – in many cases, self-directed investors receive all the benefits without the management fees and commissions that traditional investors pay through conventional brokerage houses

If conventional wisdom doesn’t dissuade you from self-directing your IRA, you are in the minority. You want to be involved, you want to understand your investments, and, most importantly, you want to incur the risk and reward afforded by alternative investments, such as real estate, notes, private mortgages, private placements, tax-liens, and precious metals.

So now that the population is living longer, the responsibility of providing a solid future throughout retirement falls fully on the individual. Break away from the herd, and be part of a group that wants to seize control of their retirement plan. The tax benefits secured by IRAs reduces the sting of income tax on investment growth. Take a look around our site to learn more about how a self-directed IRA can be used to expand your investment choices and reduce the drag of Wall Street on your earnings. After all, you have plenty of years ahead to reap the benefits.