Are IRA accounts the solution for retirement?

Things every successful Hispanic should know about IRA accounts to live the retirement you want. More than 58 million Hispanics live in the United States, being one of the most representative ethnic groups in the country, however, when we compare the average wealth levels of the American called White American versus Latinos or Hispanics:

The White American has almost 10 times more wealth than a Hispanic – Source: McKinsey 2019.

If this number alarms us, we should know that this situation worsens even more at the time of retirement when the possibilities of generating wealth are already more complex:

According to Social Security data, the average annual payment for retirement benefits for a Hispanic man was $13,821 and $10,758 for a woman, and in many cases they indicate that 90% of Hispanics not only have this benefit at the time of retirement, which of course is not enough.

So let’s see what are the 3 main sources of wealth so that we are not part of this statistic and what we should do today to live with greater financial well-being tomorrow, having financial independence and not being a burden to your family at the time of your withdrawal:

1.- Inheritance.

2.- Income.

3.- Investments.

First Source of Wealth – Inheritance

Of course, we all would like to have the first source of wealth, which is to receive a great legacy or inheritance from your family, which would make everything easier and is precisely one of the factors that day by day generate a greater difference between those who have and those who don’t. Those who receive an inheritance, can sell their parents’ houses and receive an important amount that serves as a base and more now that the values ​​of real estate have been rising consecutively in recent years and represent more than 70% of the heritage. of families.

But this is not a benefit that everyone can have and it does not depend directly on you, so let’s continue with the other two sources of wealth.

Second Source – Income

Here you don’t have to be a financial genius to know that to the extent that you generate more income you have a greater chance of generating wealth, but the big mistake that we see and that most people make is that as you earn more you spend more and in In the United States spending can be endless, there is always something for all tastes and budgets. So the great factor of wealth creation is that you manage to generate more than what you spend is that savings are born, allowing you to move on to the most important factor of capital generation, which are investments.

Third Source – Investments IRA accounts

This is where that saving, which comes from spending less than what you produce, must be invested and we are not talking about waiting for the perfect moment but about following these 3 rules:

A.- There is no perfect time, the best methodology is to invest a little every month and if you do it in an automated way you will be on the right track, in investments the best time to enter is today.

B.- Diversify! They have told us in every way not to put all your eggs in the same basket, and much more so in a world as complex as ours where we have learned with the pandemic that from one moment to another your reality can change and the best protection is focus on having a little of everything to reduce your risk.

C.- Who likes to pay taxes? To no one, although we recognize that they are important, but it is precisely there where we do not understand if the American government allows you to save for your retirement and not pay taxes on the profits or returns produced by your investments, how is it possible that so many people and especially in the Latino community and not to mention immigrants, do not know what IRA accounts are for its acronym in English (Individual Retirement Account) or individual account for retirement.

Main mistake for Latino Retirement: Not knowing what IRA accounts are

IRA accounts to see it in a figurative way are like a bank account, but it has two big differences:

1.-) The money you contribute to them can be invested in countless types of assets, such as shares or bonds.

2.-) Best of all, the return that these investments produce over time while it is inside this account, will not be subject to taxes, which allows them to grow much faster over time.

Now, as the government tells you, for what you invest in this type of account you will not pay taxes, it also stipulates a series of conditions so that it is, as they say, little good, and allows you to save a maximum amount annually ( for 2021 this amount can be $6,000 if you are under 50 years old and $7,000 if you are over 50).

Many might think, but really $6,000 a year makes a difference, and let’s see the following hypothetical example, in various publications we see that people say I would like to have a million dollars at the time of my retirement, well the formula is very simple:

If you manage to save $6,000 for about 35 years and you will earn an 8% rate, voila! He would accumulate more than $1,000,000.

Note: For educational purposes only, historical shows are not a guarantee of future results.

If you are determined to start working for that retirement you want, always remember to support yourself with the help of a financial advisor who will help you choose the portfolio that best suits your current reality and your goals. At Advise Financial we are here to serve you, we transform your finances to transform your life.

Alonso Rodríguez Segarra

Founder & CEO Advise Financial

advise-financial.com

Alonso is a “CERTIFIED FINANCIAL PLANNER™” who is dedicated to increasing the Financial Well-being of nurses, physicians and successful immigrants in Florida and Texas. With more than 20 years of experience in the world of finance, always working for the best interest of his clients, under fiduciary criteria.