Many thrifty people are searching for investment options for cash now that they’ve made the maximum allowed retirement-fund contributions. Financial experts have been saying it for years — “invest your money for retirement” — and a new survey shows that a growing number of people are listening. These people are now in the enviable position of having made the maximum allowable contributions to their retirement funds and not knowing what to do with their additional savings.

An example of good saving

Scott and Amber Rowson of Columbia, Missouri, have contributed the maximums allowed to their tax-deferred retirement accounts. They budgeted strictly enough to contribute the maximum from Scott’s state-job salary and Amber’s self-employment SEP IRA. Their two children’s 529 college education accounts are fully funded, too. Amber said, “Now that our children’s savings are taken care of and our retirement funds are maxed, we want to know where our money should go . . . over the years we’ve gotten good at squaring away a portion of our earnings and it seems illogical to just stop now.”

Ways to save after retirement accounts are funded

After retirement funds are maxed out, one option is to contribute directly to a Roth IRA. Of course the benefit is that withdrawals in retirement will be tax-free and it’s a great place to sock away more cash. There is a new change in the rules for a Roth IRA for 2010. This year everyone regardless of income can convert a traditional IRA to a Roth IRA. There is a cost, however, because taxpayers must pay ordinary income tax on the entire amount converted. Still, the strategy can pay off for taxpayers like the Rowsons. They can make the conversion and split the tax liability between 2011 and 2012.

Another option for savings

When it comes to managing cash now that retirement accounts are funded, people also can start investing in taxable accounts. Despite their taxable nature, there’s no penalty for making withdrawals from them. The benefit for the Rowsons is that Amber is self-employed and if her business suffers from market fluctuations, she can tap into any her savings whenever she needs to, without additional taxes or penalties.

Don’t forget about life insurance

Another option for the Rowsons, and anyone else wise and thrifty enough to max out their retirement contributions, is to look into alternative investments. The Rowsons’ retirement portfolios are packed with standard stock and bond options so any extra money can go into alternative savings like cash-value life insurance. This would provide another way to enjoy tax-deferred earnings as well as liquidity. Amber said, “I like this option because it gives me another safety net if my business slows down or if I decide that I want to do something different in a few years and get stuck in a learning curve.” For someone like Amber, who wants to move into real-estate investing, this could be the most viable option for the family’s future savings.

It’s an enviable thing to have maximized retirement savings

For anyone in the enviable position of having maximized retirement contributions, the question of what to do with cash now is an important one. Depending on the investor’s individual circumstances, some options may make more sense than others. Experts advise that the best thing for avid savers to do is simply to to continue saving, one or or another. There are always wise options when it comes to saving for the future.

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Many retirees are looking for debt relief as they settle their finances. After years of wise saving and careful investing, you may find yourself on the brink of retirement. Although you may be tempted to quit immediately and look for a nice quiet home to retire in, there are still some things that should be addressed. Here are some things to settle before leaving the workforce for good.

Your retirement funding

First you need to figure out the amount of funding you need to retire. At the beginning of your career it was more difficult to estimate future expenses. Now that you’re on the brink of retirement, you know how much you need to sustain your lifestyle and have extra daily cash. Make sure you address the following issues when assessing your retirement fund.

• Where do you plan to live? Do you plan to keep your home? Do you still have some mortgage payments left? Will you sell your home and downsize?
• Consider the length of time you need funding for. Statistics show that the average man today lives until 82 and the average woman lives until 85. That means you need on factor in about 20 more years of retirement funding.
• Are you planning to work part time? If so, you’ll still be generating an income to work into your calculations.
• What will your lifestyle be? Normally 60 to 80 percent of your current income is how much you’ll need after retiring. However, that doesn’t include extras such as travel, starting a business or helping fund a grandchild’s college. You may need to keep the same income during retirement.

Estimate income

Put together a list of all your income sources. This should include pensions, Social Security and investment income. Add the cash value of your life insurance policies, income from real estate and the equity you have in your home. Deduct any payments you are going to need for debt relief, and that should give you the extra funds you’ll have monthly.

Financial planning

The next step is to figure out how much money you’ll be withdrawing from savings and what rate you will be depleting it. A standard figure is to liquidate 5 percent of the principle each year of retirement. Again, this number must be customized based on your plans for retirement.

You also can look at your tax-deferred and taxable investments. Your tax-deferred investments naturally compound and they have a greater potential value. Earnings and deductible contributions however, are subject to taxes once withdrawn.

There are also RMDs, or required minimum distributions, to consider. These numbers are based on the IRS life expectancy tables. If you don’t take the right distribution on schedule, you could be subject to up to 50 percent of the required amount. Be sure to check with your retirement planner to stay aware of all changes in these rules.

A rock-solid will can help you

To fully settle your retirement planning, you must address your will and the distribution of your estate. A rock-solid will can help to quell any arguments or fights about money issues from those who you name as beneficiaries, and those who you don’t. Also check to make sure the beneficiaries on all retirement accounts and life insurance policies are current.

Enjoy your Retirement

Finally, once the above items are settled you can cruise into your official retirement. It pays to do some careful planning to make sure your finances are in order. You don’t want to leave open-ended wishes or your family to manage your debt relief. Take aim to sort through your retirement so everyone can enjoy it. Then, you can rest and have some peaceful years, and your family can enjoy knowing you’re taken care of.

Personal loans for funding college or retirement? Think carefully. (Photo: flickr.com)

One key question Americans are asking themselves is whether to use personal loans as a means of funding retirement or college funds. There is a careful balance between choosing to put hard-earned money into a person’s long-term future, or their children’s. Senior financial advisor Evelyn Dinkins recently reported on why consumers should be looking to their own retirement funds before their children’s college account.

An Expert Sounds Off

Dinkins stated that there are some very important points to saving for retirement religiously. First of all, retirement is funded one way: consumers resolutely saving. With the state of Medicare and Social Security, ancillary funding is most likely not going to be available for much of the future.  Consumers are most likely reaping the last benefits of these programs now; future generations will be on their own. For this reason alone, it’s important to realize that saving today is what’s going to take care of the average American’s future.

In addition, Dinkins spoke on how retirement funding is pretty much a fixed cost. If a consumer knows their cost of living and can project inflation somewhat accurately, they can pinpoint how much they need to save for a comfortable retirement. This amount is non-negotiable, unlike a college fund. Plus it’s important to take stock of funds at various times throughout the career to reassess if retirement fund goals are met, or if more savings need to go into the account.

Finally, with employers willing to match 401(k) contributions, it benefits all employees to take advantage of the extra money for their futures. Dinkins subscribes to the philosophy that people should “fully save for retirement and if there’s money left over, then save for education.”

On the Other Hand, There’s College

College has a good number of ways to be funded. Personal loans, scholarships, grants, and part-time jobs can all contribute to a college fund. Plus there are ways to alter this cost by going to a community college for the first two years of an education or live at home for the duration of college rather than dorm living. Schools can be chosen for a specific budget and other cutbacks can be used to save money.

How to Face Reality

Dinkins states that when a child is about 16, parents should have a serious discussion about their college future. Parents need to lay out specific financial guidelines, making it a point to communicate the total amount they can contribute. Children should understand that anything above and beyond the total parental contribution will need to be funded by their own efforts. Even if parents are able to totally fund a college experience, children should be aware of the total cost. Dinkins explained college funding to her own child this way: “My daughter looked at one particular school and I just had to say that can’t be on your list unless you want to come out with a massive student loan.”

Retirement Funding is a Priority

In the end, the temporary cost of college can be funded with a wide variety of tools such as personal loans, scholarships and grants. However, retirement funding is going to be a result of proactive savings. If their retirement years aren’t prioritized, then retirement may need to be postponed indefinitely. The bottom line is that Americans need to make sure their retirement futures are secure prior to contributing to any other funds.

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