We’ve all heard of the 401(k) and Roth IRA, but those aren’t the only options to invest for retirement.
Lesser-known investment strategies can provide unique opportunities to bolster your retirement savings and enhance financial security.
In this article, we will explore four little-known ways to invest for retirement, shedding light on these hidden gems that can pave the way to a more prosperous future.
4 Little-Known Ways To Invest for Retirement
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Health Savings Account (HSA) As a Retirement Vehicle
While most people associate Health Savings Accounts (HSAs) with covering medical expenses, they are, in fact, a powerful tool for retirement savings.
HSAs offer a unique triple tax advantage: contributions are tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are tax-free.
However, many overlook that once you turn 65, you can use HSA funds for any purpose without incurring a penalty (though regular income tax may apply for non-medical expenses). This makes HSAs a compelling option for retirement savings, especially for those with comprehensive health insurance coverage.
The HSA's long-term potential for growth can be maximized by investing a portion of the funds in the account. While most HSAs start as cash accounts, some providers offer the option to invest in a range of assets such as stocks, bonds, and mutual funds. By taking advantage of this investment feature and consistently contributing to your HSA over the years, you can create a substantial tax-efficient nest egg to tap into during retirement.
Real Estate Crowdfunding
Traditional real estate investing often requires substantial capital and can be time-consuming. However, with the emergence of real estate crowdfunding platforms, individual investors can participate in real estate projects with lower financial commitments and reduced administrative burdens.
Real estate crowdfunding involves pooling funds with other investors to finance various real estate ventures, such as residential or commercial properties. These platforms allow you to diversify your investments across multiple properties and locations, thereby reducing risk and increasing potential returns.
Another great way to invest in real estate without becoming a landlord is by buying REITs or Real Estate Investment Trusts.
Real Estate Investment Trusts, commonly known as REITs, are investment vehicles that allow individuals to invest in real estate properties without directly owning them. REITs pool funds from multiple investors to purchase and manage various income-generating real estate assets, such as office buildings, apartments, shopping malls, and industrial properties.
These investment vehicles are structured as corporations or trusts and must distribute a significant portion of their taxable income to shareholders as dividends, making them attractive for income-seeking investors.
REITs offer several advantages to investors, including diversification, liquidity, and professional management of real estate portfolios. By investing in a REIT, individuals can gain exposure to a wide range of properties across different geographic locations and property types, reducing the risk associated with a single property investment.
Moreover, REITs are traded on major stock exchanges, providing investors with the flexibility to buy and sell shares at market prices, ensuring a higher liquidity level than traditional real estate investments. With professional management teams overseeing property operations and financials, REITs allow individuals to access the potential benefits of real estate investing without requiring direct ownership or active involvement in property management.
While traditional IRAs offer limited investment options, a Self-Directed IRA (SDIRA) allows you to take control of your investment decisions. With an SDIRA, you can invest in a broader range of assets, including real estate, private equity, precious metals, and more.
This flexibility opens up new opportunities for diversification and potentially higher returns.
However, investing through an SDIRA also comes with added responsibility, as you must navigate the IRS rules and regulations carefully to avoid penalties or disqualification of the account.
Investing in royalties is an unconventional yet intriguing way to invest for retirement. Royalties are payments to intellectual property creators or owners, such as patents, copyrights, and mineral rights.
By investing in royalty streams, you can gain exposure to various industries, such as entertainment, technology, and energy, without the operational risks associated with traditional investments in these sectors.
Royalty-based investments typically provide a steady income stream, making them a stable source of passive income during retirement. As royalty assets can appreciate in value over time, they also offer potential capital appreciation.
As you plan for retirement, exploring all available investment options is essential to maximize your financial security. While traditional retirement vehicles like 401(k)s and IRAs are reliable, these lesser-known strategies can unlock hidden opportunities and diversify your portfolio and invest for retirement.
Health Savings Accounts, real estate crowdfunding, Self-Directed IRAs, and royalty-based investments each offer unique benefits that, when combined strategically, can significantly contribute to your long-term financial well-being. Conduct thorough research, consult financial advisors, and assess risk tolerance before delving into any investment venture.
Adopting a proactive approach and leveraging these little-known ways to invest allows you to chart a course toward a more prosperous and worry-free retirement.
Steve Adcock is an early retiree who writes about mental toughness, financial independence and how to get the most out of your life and career. As a regular contributor to The Ladders, CBS MarketWatch and CNBC, Adcock maintains a rare and exclusive voice as a career expert, consistently offering actionable counseling to thousands of readers who want to level-up their lives, careers, and freedom. Adcock's main areas of coverage include money, personal finance, lifestyle, and digital nomad advice. Steve lives in a 100% off-grid solar home in the middle of the Arizona desert and writes on his own website at SteveAdcock.us.