6 Retirement Plan Options to Build Massive Wealth (2024)

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Regardless of how old you are now, you should be preparing for retirement. Lifespans are increasing, and overall, people are living longer than ever before. That means you need to plan and consider all available retirement plan options so you have the money needed to support you even if you live to be 100.

It might seem obvious, but a surprising number of people don’t do enough to plan for retirement. In fact,36% of all Americans over the age of 65 are completely dependent on Social Security to support themselves.

That’s a worrying statistic, but the good news is that there are plenty of retirement plan options you can start using right now to ensure that you have the money you need to retire when the time comes. Your best bet is to think of Social Security as a supplement to your primary source of income.

Check out the following retirement plan options, their requirements, and make a plan to secure your financial future today.

6 Retirement Plan Options to Build Massive Wealth (1)

Employer-based Retirement Plan Options: 401K or 403B

The first kind of retirement plan to consider is the 401K or 403B plan. Many employers offer a 401K plan to their employees and provide matching funds. The funds are contributed on a pre-tax basis, which means you will have to pay taxes on the money when you withdraw it.

If you are self-employed, then you may want to open an individual 401K plan. You can contribute up to $53,000 per year (the limit is $18,000 for employer-provided 401K accounts) and up to $59,000 if you are over the age of 50.

403B plans work the same way as 401K plans but are typically provided to employees of non-profit organizations. 401K and 403B retirement plans allow employees to make catch-up contributions of up to $6,000 per year if they are over the age of 50.

Non Employer-Based Retirement Plan options: Individual Retirement Account

The Individual Retirement Account, or IRA, is another popular option. There are several kinds of IRA, some of which may be more suitable to your needs than others.

Note: You can sign-up for your very own IRA with WealthSimple and earn an awesome cash bonus for getting started!

  1. Those who are self-employed typically use the SEP IRA. You can contribute up to $53,000 per year. If you have employees, then you will need to provide a similar plan for those who qualify.
  2. The Simple IRA is a retirement plan available to employers with fewer than 100 employees. The employer may make unmatched contributions or matching contributions, and employees may contribute up to $12,500 per year as of 2017.
  3. A traditional IRA allows any person to contribute up to $5,500 per year to the plan, a number that increases to $6,500 over the age of 50. However, people who also have an employer-provided 401K may not be able to claim a tax credit if their income exceeds $71,000 ($118,000 for couples.)
  4. A Roth IRA allows you to contribute after-tax dollars and pay no taxes on withdrawals taken after you reach the age of 59 ½. The other primary difference between a traditional IRA and a Roth IRA is that there are no mandatory withdrawals at age 70.

If your employer does not provide a 401K plan, opening an IRA can be a good way to prepare for retirement.

Check out your IRA options with WealthSimple.

Pension Plans

Many government employees and some non-government employees have pension plans that provide them with guaranteed income after they retire. If you work for an employer who provides a pension plan, you can factor that into your retirement plans.

One important caveat here is that in some cases, government pension payments may impact the amount of Social Security you receive. If you are a government employee,make sure that you understand how your pension will factor into your retirement plans.

Annuities

Annuity plans offer guaranteed income to retirees based on their contributions. There are several types of annuities to examine when considering your retirement plan options:

  1. Fixed income annuities are insurance plans for retirement, traditionally sold by insurance companies. You make a lump-sum donation to open the annuity and the company provides a guaranteed interest rate. The donations are pre-tax and you will pay taxes when you withdraw money.
  2. Fixed index annuities are tied to a stock index such as the S&P 500. They offer investors the chance to earn a higher interest rate when the index is up. There is traditionally a cap on the interest to protect the annuity holder when the market is down.
  3. A variable annuity’s interest rates are tied to underlying investments in the stock market. As such, they offer the potential for much higher earnings than fixed income or fixed index annuities, but they also are riskier because if the stock market has a major downturn, your income will be affected.

All annuity options typically include a surrender charge that will apply if you withdraw money early, and some may limit your ability to pass the funds left in the annuity to your heirs if you die. It’s important to read the fine print and make sure you know what you are buying with each of these retirement plan options.

Health Savings Account

Finally, you may want to consider a Health Savings Account (HSA) to help offset medical expenses. If you’re under the age of 50, you can contribute $3,350 annually, with a cap of $6,650 per family. You can contribute $1,000 more once you are over the age of 50.

There are typically penalties for early withdrawal. Once you reach 65, you can withdraw money for any reason if you pay taxes on it. If you use the money for retiree medical expenses, you will not have to pay taxes. You can even save receipts from when you were younger and reimburse yourself for those expenses out of the account.

The best part of having an HSA is that the money rolls over from year to year if you don’t spend it. In that way, it is like a traditional retirement account.

The Bottom Line

Planning for retirement requires more than simply reviewing your Social Security statements on a regular basis. For most people, Social Security alone will not provide sufficient income to allow you to cover your expenses in retirement.

If you’re unsure what you need for retirement or which retirement plan options are best for you and your family, then you might want to consider meeting with a financial planner or accountant to determine how to prepare for retirement. The more preparation you do today, the less likely it is that tomorrow will find you short of money when you need it most.

About the author – Troy Martin

Troy has been married for 27 years to his wife Shauna. They have six active children and they love to participate in many extracurricular activities including : boating, flying, mountain biking, hunting, fishing, horseback riding, and adventure motorcycling (pretty much whatever will get them outside).

Troy has a vast amount of experience in the following business sectors: medical, dental, manufacturing, retail, restaurants, construction, farming and ranching.

He is a shareholder in Cook Martin Poulson a Utah Accounting Firm.

6 Retirement Plan Options to Build Massive Wealth (2024)

FAQs

6 Retirement Plan Options to Build Massive Wealth? ›

Wealthy people take advantage of their employers' 401(k) plans. A survey of 10,000 millionaires showed that there was one account type most had in common: A 401(k). According to the survey by Ramsey Solutions, eight in 10 millionaires had this common account in their portfolios.

What retirement accounts do millionaires use? ›

Wealthy people take advantage of their employers' 401(k) plans. A survey of 10,000 millionaires showed that there was one account type most had in common: A 401(k). According to the survey by Ramsey Solutions, eight in 10 millionaires had this common account in their portfolios.

What is the 7% rule for retirement? ›

Understanding the 7% Rule for Retirement

Let's illustrate this with a simple example: if you have $100,000 in your retirement savings, under the 7% rule, you would withdraw $7,000 each year.

What is the $1000 a month rule for retirement? ›

The $1,000-a-month retirement rule says that you should save $240,000 for every $1,000 of monthly income you'll need in retirement. So, if you anticipate a $4,000 monthly budget when you retire, you should save $960,000 ($240,000 * 4).

Is a Roth IRA better than a 401k? ›

Roth IRA matchup, a Roth IRA can be a better choice than a 401(k) retirement plan, as it typically offers more investment options and greater tax benefits. It may be especially useful if you think you'll be in a higher tax bracket later on.

How many Americans have $1000000 in retirement savings? ›

However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings.

Where do millionaires keep their money if banks only insure 250k? ›

Millionaires don't worry about FDIC insurance. Their money is held in their name and not the name of the custodial private bank. Other millionaires have safe deposit boxes full of cash denominated in many different currencies.

Can I retire at 62 with $400,000 in 401k? ›

If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.

How long will $400,000 last in retirement? ›

Safe Withdrawal Rate

Using our portfolio of $400,000 and the 4% withdrawal rate, you could withdraw $16,000 annually from your retirement accounts and expect your money to last for at least 30 years. If, say, your Social Security checks are $2,000 monthly, you'd have a combined annual income in retirement of $40,000.

How long will $500,000 last in retirement? ›

Yes, it is possible to retire comfortably on $500k. This amount allows for an annual withdrawal of $20,000 from the age of 60 to 85, covering 25 years. If $20,000 a year, or $1,667 a month, meets your lifestyle needs, then $500k is enough for your retirement.

How many years will $300 000 last in retirement? ›

$300,000 can last for roughly 26 years if your average monthly spend is around $1,600. Social Security benefits help bolster your retirement income and make retiring on $300k even more accessible. It's often recommended to have 10-12 times your current income in savings by the time you retire.

How long will 200k last in retirement? ›

How long will $200k last in retirement?
Retirement ageLength of time covered by the $200k (assuming a life expectancy of 80 years)Maximum annual and monthly distributions
6020 years$10,000 annually, $833 monthly
6515 years$13,333 annually, $1,111 monthly
70Ten years$20,000 annually, $1,667 monthly
4 more rows

Can I retire at 60 with $800 000? ›

If you have substantial income from sources like a pension and Social Security, an $800,000 portfolio could last for many years. That's especially true if your expenses are low and you don't have significant health care expenses.

Is there a downside to Roth 401k? ›

No tax deferral now. The list of cons may be short for Roth 401(k)s, but missing tax deferral is a big one. When faced with a choice of paying more tax now or later, most people choose to pay later, hence the low participation rates for Roth 401(k)s.

Can I contribute full $6,000 to IRA if I have a 401k? ›

A work 401(k) is a nice perk to help you increase your retirement savings. If you're also trying to save outside of your employer-sponsored retirement plan, however, you might run into some problems. The good news is that you can contribute to an IRA even if you also contribute to a 401(k) at work.

Should I max out Roth or 401k first? ›

If you don't have enough money to max out contributions to both accounts, experts recommend maxing out the Roth 401(k) first to receive the benefit of a full employer match.

What type of accounts do millionaires use? ›

The Right Bank Account for Millionaires

“Many millionaires opt for private banking services that provide personalized attention and a dedicated relationship manager. Wealth management accounts may include a suite of financial services such as investment management, estate planning and tax advisory,” she added.

Do rich people use retirement accounts? ›

Plenty of millionaires and superrich people use 401(k) plans to build wealth.

Where do most millionaires retire? ›

CNBC has also crowned New York as the most expensive state to retire in, followed by New Jersey, Vermont, Massachusetts, and Maryland. California is also an expensive state to live in. Wealthy individuals love to retire to such places, offering them the best of shopping, dining, and other form of leisure.

Do millionaires use Roth IRA? ›

But the tax incentives that the new accounts provided weren't lost on the rich or their accountants. In recent decades, with the advent of the Roth IRA and relaxed restrictions on IRA rollovers, ultrawealthy Americans have reportedly built tax-sheltered accounts worth many millions—or even billions—of dollars.

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