Yesterday, Sheri and I visited our financial advisor with Edward Jones. We are nearing the point in our lives, official retirement, when we’ll fund our own living expenses out of Social Security and our investments over the years.
Fortunately our sending organization had us mandatorily invest in a 401K every month during our younger ministry years. Although the stock market is rolling around like a coaster these days and not giving us a great return-on-investment (ROI), yet because of that commitment, we do have some investment income we can draw on to fund us soon.
Last month a younger missionary couple with kids almost out of the nest, thinking about their future, asked for advice on how to invest for their retirement. I’m not an official financial advisor, so I only gave them a description of a couple options that Sheri and I use.
Dear Jim and Kelly,
I’m getting back to you on your request about info on retirement planning. If you want to see your money grow beyond saving accounts or money market rates, then investing in mutual funds is a solid way to go. And having those mutual funds in an IRA (individual retirement account) helps protect your savings from yourself! We can always think of some reason we need the retirement money we are saving, take it out and use it for something NOW. The IRA protects against that since there’s a penalty for taking it out before you are fifty-nine and one-half years old!
The USA government has created the IRA as a vehicle to help Americans invest for their retirement future.
There are two basic type of IRA’s.
(1) The first IRA is the pre-tax dollar IRA. You put pre-tax dollars into this IRA and your money is invested in the types of funds you authorize. Funds are set-up according to risk: from much risk with a higher ROI, to bond-type funds with very little risk but a lower ROI. You choose your risk factor. Your money stays invested and grows over time.
After you are 59 or older, you may start using this money for anything you want. When you take it out, you pay taxes on it at that time. The concept here is: In your retirement years when your income is lower, your tax bite is lower. So theoretically you don’t pay as much tax on the use of that money in retirement as you would in your earning years when you first put it in.
This theory has been challenged by a lot of financial gurus, since our objective with investing now is to be able to have enough money in retirement to maintain our present standard of living — which would probably mean being in the same tax bracket then as you are now.
(2) The second IRA is the taxable-dollar IRA called a Roth IRA. With the Roth IRA, you put taxable money into it now, which then grows tax-free until you take it out. When you take it out, your money is also tax-free since you paid taxes on it going into the account.
In my mind, it makes sense to go with a Roth IRA if you can handle the tax-bite now, because you won’t have to pay taxes on it when you are in retirement. There are limits on how much you may put into this account each year — for obvious tax reasons! Presently the amount is $6000 per person.
If your organization has a retirment savings plan for you — a 401K, or 403B — they normally invest in a pre-tax IRA for you. But some groups also have the Roth IRA option available. If that’s interesting to you, ask your home office about it.
You can set up an IRA with a financial advisor, through your bank, or through your organization.
Looking back on life from the perspective of 67 years; knowing the rising costs of living we face now; and seeing the tremendous economic problems the USA is facing which have implications for our future — I would definitely recommend you open an IRA . . . ASAP. Start saving for your own future so as you reach those years when you need to fund your own monthly income — you will have some!
Let me know if you have other questions.