It all boils down to three things. Well, mostly three things.
Why Pass on Traditional Retirement Accounts
Here’s my three reasons for passing on traditional retirement accounts:
- 59.5 years old – This may be a fairly unconventional viewpoint, but I have no problems breaking from convention. To state my issue as simply as I can, I’ll just say that money I can’t touch until I’m 59.5 years old is pretty much as attractive to me as a needle to the eye. I’m of the belief that financial freedom requires both financial well-being and freedom. There’s no such thing as being free to use your money as long as you wait until you’re 59.5 years old. For me, that’s about 37 years from now, a long time away – and besides, I don’t trust prime numbers.
- Predicting the future – Find a discussion on ROTH IRAs. Now find a discussion on ROTH IRAs that does not include the use of passive index funds. Most advice with self-managed retirement funds focuses around the viewpoint that mere mortals cannot beat an efficient market. My bias aside, I find it crazy to assume that mere mortals cannot predict financial markets, but can predict the actions of Congress members 10, 20, even 30 years from now. If I told you 15 years from now you’d have to surrender to a pat down to get on an airplane you’d tell me I was nuts. Well, that’s the new reality. There is no order to the whims of 535 people.
- Nomenclature vs. Utility – This works in with point #1. Just because a ROTH IRA is labeled “retirement fund” does not necessarily make it a better vehicle for storing retirement funds. I can scribble “keys” on a 1.5”x2.5” little manila envelope, but there is no way that I would find it a better place to store my keys than the unlabeled kitchen table. Sometimes the most obvious place to store something, even if properly labeled, isn’t the best place.
Retirement vs. Retirement Accounts
I really do believe younger people would be better ditching retirement accounts in favor of taxable accounts for any number of reasons. First, I don’t think the tax benefits are really all that favorable, especially relative to the potential investments that one can purchase through traditional pension plans.
Real estate, options, and a slew of other financial products and investments are either off-limits, or made to be more complicated with funds meant for retirement. In many cases, I purchase options where I’d prefer not to own common stock due to the potential loss. (See article about my purchase of Ford options.) Nevertheless, options are considered “too risky” or “too speculative” for retirement accounts. (This seriously makes no sense.)
I’m of the mind that there are more opportunities than there are potential pitfalls. When opportunities arise, they’re usually short-term opportunities where one can fill the void in an otherwise efficient market. Just think, a few months ago I was thinking about buying a condo. Now I know why they’re relatively inexpensive (it’s a freaking retirement community!) but I think there’s a lot to be said for being liquid enough to take the path less traveled when it brings about other investments.
Commitment – at least so far as an investment strategy – has really no appeal. While the safe and certain route is supposedly found in traditional retirement accounts, there’s some kind of “imbalance” I find lacking in having assets build in a restrictive vehicle. The idea that I can’t remove assets from one side of the equation to tend to assets and opportunities on another doesn’t seem to jive with any potential tax benefits.
Meanwhile, concern needs to be paid to the exit strategy. I started tending to my finances early, and have a head start that seems somewhat…wasted in restricting the benefits of an early start until I’m nearly 40 years older. This is just as important in making the jump to retirement. If safe and reasonable cash flow is the aim, real estate owned directly sure seems to kick the snot out of corporate or government bond yields. Plus, given I’d have the time, who’s to say that managing real estate investments wouldn’t be worth the trade-off for higher yields?
Ever have a love-hate relationship with retirement planning?
Do you – or someone that you know – embrace the idea of investing outside traditional retirement accounts?