Retirement

Polina Marinova does an excellent weekly newsletter on Substack. You can easily subscribe here. This week's was especially good so I wanted to share.

Good morning, friends!

One of life’s great ironies is that simplicity has become pretty complicated. Technology was supposed to make our lives easier — and it has, in many ways — except it hasn’t made them simpler. 

There’s always a notification here, an email that needs responding there. Things compete for your attention at all hours in the night. In turn, this “easy” world has made us reactive, defensive, worried, and distracted.

I always notice those qualities in myself when I visit my grandmother in Bulgaria. She recently bought a villa near the Rila mountains where it’s not uncommon to see sheep, chickens, and cows just casually wandering around. In stark contrast to my life in Manhattan, the only noise you hear at 6 a.m. is the neighbor’s annoying rooster, not the cab driver screaming obscenities in the street. There’s a reason Bill Gates takes a “Think Week” once a year in a secluded cabin in the woods.

It’s an understatement to say that we live in a world of over-indulgence. I’ve written about minimalism before, and noted that the worst form of excess is to achieve everything you’ve ever dreamed of and realize that somehow you’re still not happy and that something is still missing. And that, my friends, sucks.

There’s this famous passage from Matt Haig’s memoir Reasons to Stay Alive:

The world is increasingly designed to depress us. Happiness isn’t very good for the economy. If we were happy with what we had, why would we need more? 

How do you sell an anti-aging moisturizer? You make someone worry about aging. How do you get people to vote for a political party? You make them worry about immigration. How do you get them to buy insurance? By making them worry about everything. How do you get them to have plastic surgery? By highlighting their physical flaws. How do you get them to watch a TV show? By making them worry about missing out. How do you get them to buy a new smartphone? By making them feel like they are being left behind. 

To be calm becomes a kind of revolutionary act. To be happy with your own non-upgraded existence. To be comfortable with our messy, human selves, would not be good for business.

So this leads me to my grandmother’s neighbor Ivan. He couldn’t care less about anti-aging moisturizer, plastic surgery, or smartphones. He may lead a simple life according to our standards, but it’s not in any way less busy or fulfilling.

He has animals, he does a ton of physical work every day, and he seems genuinely happy. His biggest worry the last time I saw him was how horrible airplanes are for the environment and how he sees them in the sky every day now.

It’s just a really great reminder that there’s no one one “right” way to live a fulfilled life, and I hope the variety of profiles each week prove that point. 

A self-directed IRA provides various alternative investment options that are generally prohibited under traditional IRAs or 401(k). Self-directed IRAs are administered by trustees or custodians but are directly managed by the account holders.

A Self-directed IRA is more flexible as compared to regular IRAs because it allows investors to distribute capital in a much broader array of assets. Although the popularity of self-directed individual retirement accounts is gradually increasing, many investors are still not fully aware of the rules and regulations. And as a result, beneficiaries end up getting poor outcome or become disqualified.

Here are the least known but some of the most important facts to help you make a sound judgment and maximize benefits from a self-directed IRA investment.

Ensure Accurate Documentation and Learn the Fee Structure for a Self Directed IRA

Proper documentation is required for investing in a self-directed IRA. Types of documents largely vary depending upon the asset being purchased. Generally, the required documents are the same as when purchasing an asset in your non-retirement account. 

A self-directed IRA has a complicated fee structure. Typically, a one-time establishment fee, first-year annual fee, and renewal fees are charged. Apart from this, you also have to pay for the investment bills. 

Choose a Qualified Custodian and Know Their Limitations

The NASAA has specified that only an IRS-approved company is authorized to act as the custodian. Non-depository banks, depository banks, or trust companies can qualify for this. You can also open a self-directed IRA at most major brokerages such as Fidelity and Schwab.

Remember, custodians do not guide investors because it is not their fiduciary duty. Neither do they recommend investment options nor perform due diligence reviews. They serve as an intermediary between investors and the issuer of an investment and do not investigate or verify the accuracy of the information. It is the sole responsibility of the investors to fact-check and decide.

Know Your Investment Options

A self-directed IRA gives you more investment choices than typical IRAs. Apart from mutual funds, stocks or bonds, some other self-directed IRA investment options are:

• Precious Metals: Investing in gold, silver, and other precious metals as an alternative asset helps protect investments against inflation and preserve wealth irrespective of the economic condition.
  
• Private Lending: Beneficiaries of self-directed IRAs can lend money to borrowers and earn interest, and also receive their invested amount. But lenders are required to handle the necessary paperwork.
  
• Real Estate: By investing in a property or real-estate you can earn profits. Remember, you cannot live in that property and you have to use the IRA money for the purchase and maintenance of the property.
  
• Bitcoin and Digital Currencies: Investing in bitcoin and cryptocurrency is relatively new but has great potential. Note that digital currencies are considered capital assets, so when sold at a profit, it would attract taxes.

Learn About Prohibited Transactions and Disqualified People

The IRS has provided a complete guideline on the prohibited transactions and disqualified people. A spouse, employer, fiduciary, and account-holders who own more than 50% in an entity are disqualified. If the account holder is a director or an officer or owns at 10% of an entity, then that is also prohibited.

Know Where Not to Invest

To avoid being disqualified and attracting a penalty, abstain from investing in the following sectors:

• Life Insurance Policy: Buying life insurance plans is not allowed under a self-directed IRA.
• Personal Loans: Self-directed IRAs cannot be used for personal loans.
• Precious Metals Without The Required Purity Level: Precious metals below the purity level of 99% do not meet the eligibility standards.

By exercising due diligence, consulting qualified financial advisors and attorneys, and doing the groundwork, you can not only protect self-directed IRA investment but also maximize benefits.

If you are planning for your retirement we have a number of other resources you can find on the FinTech Freedom website.

Author Bio: Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch, BiggerPockets, SocialMediaToday, and NuWireInvestor.

The following is a guest post from Jon Dela Cruz. Jon is a researcher with iCompareFX where he looks at how the world’s leading overseas money transfer companies operate. Outside of work, Jon likes bicycling around town.

Statistics show that of all the American expats who live overseas, around 23% are retired. In addition, about 44% of all American expats would like to spend the rest of their lives in foreign countries. While the reasons to retire overseas vary, paying attention to finances before the move remains all too important.

Determine Cost of Living

A significant number of people who retire overseas do so with the hope of living a good life, especially when they move to countries where the cost of living is low. However, moving to a foreign country can backfire if the cost of living is higher than what you’re used to or what you expect. To get an indication of what you might be up against, you may turn to online resources such as WorldData and Numbeo.

Set Aside Enough Cash

You need to set aside cash to take care of at least six to 12 months of your living expenses before you make the move. While you might look forward to a lower cost of living, you need to account for other expenses such as rental deposits, the cost of setting up a new home, legal fees, shipping fees, and emergency medical situations.

What About Your Savings?

It makes sense to keep your savings in your existing American bank account, with the federal protection providing adequate peace of mind. If you plan to use an American bank account to access your money when overseas, look for an account that comes with rebates on international ATM fees. Sign up for online banking, if you haven’t already, so you may access your accounts from anywhere.

Do You Need a Local Bank Account?

Opening a bank account in some countries involves considerable paperwork and might take more time than you expect. However, this is not the case everywhere. In some instances, you might benefit by opening a local bank account through reduced fees or higher interest rates. What also helps is that American retirees may choose to receive their Social Security payments directly into their overseas bank accounts.

Transferring Funds

If you need to transfer funds across borders at any time, you might be tempted to use the services of your bank. However, you might be better of turning to specialist overseas money transfer companies, because they tend to offer better exchange rates and charge lower fees. While companies such as TransferWise, WorldFirst, and OFX give you easy means to transfer funds directly to bank accounts, ones such as Western Union and MoneyGram give you the ability to transfer money to cash pick up locations as well.

Renting or Buying

One of the most crucial financial decisions you need to make is choosing between renting or buying a home. Bear in mind that you might not be able to get a mortgage as a foreigner in several countries. In addition, renting is usually a simpler and more cost-effective way to go. If you do decide to buy a home, make sure you hire a local attorney with experience in real estate to guide you through the process.

Conclusion

Retiring in a country outside of the United States can come with its share of pros and cons. For instance, while you might benefit through a lower cost of living, you might have trouble finding an American health insurance provider that covers foreign residents. As a result, it is imperative that you have your groundwork in place and make a decision accordingly. If you are in the process of preparing for retirement we have a retirement page with additional information.

Think retirement investing is only for the wealthy? Think you will be working until your 80's like those in this E-Trade commercial? Think again. With the latest in FinTech, investing – with “common man” amounts – has never been easier.

#1 – Acorns

The app is exactly like it sounds – a squirrel stashing away an acorn at a time towards their long-term survival. Acorns approach to investing is called micro investing.

Acorns is affordable with no minimums and no trade fees – pay only $1 a month until your portfolio exceeds $5,000 and then it's only 0.25% annually after that

With Acorns investing is simple:

1. Connect the accounts and cards you use to make everyday purchases
2. Make a purchase like you normally would – Acorns will round the purchase up to the nearest dollar. For example, if you buy a coffee for $3.50 at Starbucks your transaction will be rounded up to $4.00.
3. Invest the change – Acorns will take the change from each purchase and invest your spare change. Remember that $0.50 that was rounded up from our Starbucks coffee? That $0.50 gets invested.

Acorns also offers other channels to make contributions to your investment as well. These take the form of:

1. One-Time Payments – get a bonus? Invest a little with a one-time payment.
2. Recurring – Set a daily, weekly or monthly investing payments to be automatically transferred to your investment portfolio.
3. Found Money – Brands that you buy, like Apple, Groupon and more, invest in your Acorns account. That takes cash rewards to a new level.
4. Referrals – Like Acorns? Tell your friends! Your account grows when you share the word about Acorns with others.

If you want to set it and pretty much forget it, you can. Everything can be set up to happen automatically from investments to portfolio rebalancing.

#2 – Stash

Like Acorns, Stash approaches investing with small change adding up over time. You can start investing with as little as $5.

To make an investment, Stash needs to be set up with a checking account. Stash gives you access to over 30 different investment options and personal guidance. You are able to buy fractional shares so you are investing what you can afford.

Unlike Acorns, Stash is free for the first month. After the introductory period, you are charged $1 a month for your subscription for accounts under $5,000 and $12.50 or 0.25% a year on accounts over $5,000. How easy is that?

#3 – Robinhood

While this Robinhood doesn’t rob the rich to feed the poor, it does make the poorer man rich. With manual management, the costly overhead of brokerage fees are eliminated.

Robinhood is designed to be intuitive – no manual required. With fast, simple and self-controlled trading, who wouldn’t want to have an active role in managing their investment portfolio?

Trading is free for US Listed Securities but keep in mind international securities or broker-assisted trades there are fees so be sure to read the fine print.

#4 – DIY Fund

Exactly as the name implies, the DIY Fund is all about access to education and resources so you are in the driver's seat of your investments.

The goal – to give individuals the same portfolio management tools that the professionals have. From portfolio monitoring to rebalancing tools and risk analysis – DIY Fund has a dashboard to help you reach your goals.

They believe (as we do) that knowledge is power and provide education about investing through their platform so individuals can learn proper investing techniques.

Retirement Investing

Retirement investing and growing a nest egg for your future has never been easier. For just pennies at a time, your financial freedom can be within reach. Can't decide which individual retirement account you should use?

An IRA (individual retirement account) is an IRA, right? Wrong. Not all IRAs are created equal. Let's examine both in more detail.

Traditional IRA

A traditional IRA contribution is tax-deductible on your federal tax return for the year you make the contribution. 

How does the saying go? The only things you can’t escape are death and taxes. There are tax considerations for a traditional IRA even though the money you put into it isn’t taxed when you put them in.

You pay the taxes you pay on the traditional IRA money when you take the money out at retirement time. When you make a withdrawal it is taxed at your ordinary income rate.

The benefit to contributing to a traditional IRA is that it lowers your taxable income during the year you contribute which lowers your adjusted gross income. Conversely, when you take out the money in retirement you are most likely to be in a lower tax bracket because you are in retirement. For this reason, a traditional IRA is beneficial. However, this supposes that taxes will remain the same or not go up substantially in the future.

While traditional IRAs can be invested in many assets, there are some limits to the types of assets a traditional IRA can hold. This is true in the case of a 401K which from a tax perspective works in the same way as a traditional IRA.

Roth IRA

If a traditional IRA is taxed at the time of withdrawal, you may be able to guess how a Roth IRA is different.

A Roth IRA contributions provide no tax breaks when you put money into it, but withdrawals from it are generally tax-free.

Roth IRAs can be invested in any type of vehicle you want: index funds, lifecycle funds, individual stocks or alternative investments. There are income limits for Roth IRAs.

Which IRA is right for me?

Knowing which IRA is the best choice for you depends on your anticipated income at retirement. If you find that you are eligible for both Roth and Traditional IRAs, you are generally better off with a traditional IRA if you anticipate being in a lower tax bracket than your current tax rate when you retire. However, since it is impossible to predict what the rate of taxes will be in the future a Roth IRA can be substantially beneficial.

Withdrawal Rules

One major difference between Traditional and Roth IRAs is the age at which you withdraw funds.

Traditional IRAs require you to take a required minimum distribution (also known as a RMD) at 70.5 years old whether you need the money or not. Roth IRAs, on the other hand, do not have this age requirement. In fact, no withdrawals are required during the owner’s lifetime.

Roth IRAs become a great vehicle to transfer wealth because if you have another source of income, you can designate it to beneficiaries. Your beneficiaries also receive the income tax-free withdrawals although there may be estate tax considerations.

IRAs were created as an incentive to help you not only save on taxes but also as a way to save for your future. IRAs can be excellent tools to use not only for retirement planning purposes but also during your estate planning process.