What To Do With Your 401(k) When You Retire

Planning Retirement 401(k) Investment Real Estate

All soon-to-be retirees have to tackle a seemingly endless list of matters to consider when planning their retirements. A key concern for retirees is what to do with their employer-sponsored 401(k) retirement accounts when they retire.

Technically, you can choose to simply leave your 401(k) alone, and take the minimum required distribution if you’re over the age of 70 ½. However, once you are no longer employed by the company sponsoring your 401(k), you can no longer contribute to it, which is a serious limitation if you have other sources of income you wish to invest into it.

Government bonds are no longer the ideal retirement investment they once were.

It’s advisable at this point to shift your investments to options which are more stable and less risky. In the early years of 401(k) plans, it wasn’t unusual for retirees to put their money into ultra-secure government bonds. This was a worthwhile investment, as 30 to 40 years ago bonds commonly featured interest rates of 8 to 12%.

But nowadays, the best interest rate you can hope to get on a treasury bond is about 2%, which scarcely outpaces the current inflation rate. Given how expensive retirement is these days, especially for those who expect to eventually enter a retirement home or assisted living home, merely keeping up with inflation simply won’t cut it. But putting money into investments with greater growth potential, but which also have far greater volatility, simply isn’t an option. So what to do?

Rolling over into a self-directed IRA offers the opportunity to invest in high yield real estate deeds.

Many retirees roll their 401(k) accounts into an IRA or Roth IRA, depending on their particular needs. However, that still leaves the question of what to do with the money in your IRA. Many retirees are having great success rolling their 401(k)s into self-directed IRAs, and then using that capital to invest alternative options, such as real estate.

In recent years, real estate-backed options have been a “best of both worlds” type choice, as they can offer far higher yields than traditional investment choices, without the volatility inherent to most Wall Street investments. However, simply investing in one or two pieces of property does expose retirees to downturns in the market, which can be devastating for those who have short- to mid-term outlooks for their investments.

This is why we recommend diversified investment funds that specialize in trust deed investments. The Socotra Fund is an ideal option, providing non-leveraged, low loan-to-value (LTV) loans across many properties. Rather than relying on the value of a single piece of property, a real estate fund offers stability, with the bonus of providing a consistent monthly income that allows you to quickly take advantage of the interest on your investment.

Even the best mutual funds, such as Morgan Stanley’s income fun, currently provide returns of about 3 to 4%. In contrast, real estate funds—including the Socotra Fund—commonly offer interest rates of 8 to 10%.

If you would like to learn more about how you can leverage real estate in order to realize the maximum potential of your 401(k) when you retire, while protecting your nest egg from market volatility, call Socotra Capital at (916) 277-9311, or send us an email.

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