A wise investment may consider incorporating equity crowdfunding in retirement planning. As Social Security diminishes, many Americans are focused on creating a substantial retirement plans. Many traditional retirement plans, such as 401(k) accounts, have lost enough money to be stuck at a plateau in recent years. This leaves many searching for a new option to sustain their future plans.
Equity Crowdfunding and Retirement: Planning
Before equity crowdfunding can be considered as part of the retirement plan, consider the retirement options available now. Years ago Americans relied on Social Security benefits but, as the population boomed and life expectancy increased, this source was lost as a stand-alone solution. According to the Social Security Administration scheduled benefits will pay out 77 cents for each dollar of scheduled benefits by 2033.* Currently, a 33 year old making $40,000 a year can expect $1,378 per month if retiring at 65 (subject to change). It is unlikely that this would be sufficient to sustain a retirement lifestyle for anyone interested in travel, early retirement, or saddled with debt when they expect to retire. Preparing for retirement takes additional planning.
The Prudential recommends a four-pillar approach to retirement. First, determine your retirement choices. Consider what type of lifestyle you want and expected retirement age. The next pillar is social security benefits and, as mentioned before, this would need to be supplemented by additional income. The third pillar is employment plans such as a 401(k), 403(b), or 457. Each of these is a tax-qualified defined contribution pension accounts. Simply put, the employer takes a preset amount from each paycheck untaxed and puts it into the hands of a third party who will invest in mutual funds, bonds, and money market accounts. The great benefit of employment plans is that often employers will match a certain amount of the contributions. The drawback is that these are low or moderate risk investments and therefore it can take a number of years (decades in fact) to save a substantial amount of money. Prudential identifies the final pillar of successful retirement as personal savings.
Personal savings is a misnomer; while this title implies simply savings accounts, it actually refers also to individual retirement accounts (IRA), annuities, mutual funds, and any additional investments made by an individual. Each of these options has a moderate to low rate of return. Even trading public stock often relies on a person investing in an established corporation with little growth. Incorporating equity crowdfunding into a retirement plan may provide a potential for faster growth. Closing this gap for those looking to retire sooner may consider equity crowdfunding as part of their retirement.
Equity Crowdfunding and Retirement: Enhanced Options
There are two main conditions of successful retirement: time and investment amount. Low to moderate risk investments will take a significant amount of time to make a return. However, higher risk investments may yield higher returns in shorter time. Companies typically experience the most growth early on so as they become more established, the stock prices and dividends tend to level off. By investing through equity crowdfunding sites (like truCrowd ), a person may be able to select companies that are expected to have high growth and to obtain a larger return in shorter time. Of course, the converse is true that there is always the possibility to lose as well. This can be a very helpful option for educated investors who are closer to retirement age and have less time to wait for other investments to create a reasonable return. A savvy investor may consider equity crowdfunding in retirement planning as a good tool in speeding up the accumulation of wealth, especially because the limits imposed by SEC on the investment amount is such asset, prevent the possibility of huge losses.
Another positive is that via equity crowdfunding an investor is able to maintain tighter control of their investments. Let’s consider the 401(k), one of the most popular retirement options. Each 401(k) package typically consists of a combination of moderate risk (mutual funds) and low risk (bonds, annuities) investments in such a balance that the 401(k) profits should obtain a slow climb. You are able to select from a package however there is a third party administrator that creates the packages, thereby decided how the group will split funds into each investment. The benefit is that you don’t have to think about retirement saving. On the other hand, you can’t adjust your investments individually. Through equity crowdfunding the investor selects the companies and amount of investment individually. This allows the investor to be aware of their portfolio more closely and select investment options that provide more growth.
Equity crowdfunding may become a common option for those interested in taking charge of their retirement funds. As the economy continues to evolve, financial planning must evolve as well. Investing wisely can help to grow a great nest egg and to maintain an excellent quality of life regardless of work status. Equity crowdfunding will not only be a tool for new companies but for those adventurous investors who are not satisfied with moderate gains. It is worthwhile to review the opportunities of equity crowdfunding for retirement planning.
What do you think? Would you consider equity crowdfunding for your retirement? Why? Why Not?