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Apr 11 2011 12:00AM

Question


I have been living in Europe for the past seven years. Aside from direct investments, what choices do I have for saving efficiently for my retirement? I know that I am not allowed to fund an Individual Retirement Account (IRA). Are there other 401(k) type of investments I should be looking at?

Answer


FPA member R. Chad Davis, CFP® of Davis Wealth Services, said the answer requires the answers to some other questions.

“As for efficient investing for retirement, I would ask a couple of questions. What tax bracket are you in? How old are you? What is your target date for retirement? All of these are important questions and would shape my answer. 

“For example, there are some good investments out there today that lack liquidity. If you were two years from retirement for example, liquidity would be a concern. You mention that you are not able to fund an IRA. I would question why, but assume it is due to income. If that is the case, I would then ask what you do for a living. If you are self-employed, a SEP or Simplified Employee Pension plan would possibly work. If you work for someone else, odds are they have a 401(k) or SIMPLE IRA available and those are excellent ways to save for retirement.

“Outside of that, there is nothing wrong with a tax-efficient index fund. These funds are low in expenses, generally do not force capital gains or dividends and when you sell at retirement, you will pay long-term capital gains. Tax-deferred annuities are another vehicle that you can use. Variable annuities are essentially mutual funds under an insurance wrapper. You can trade within the variable annuity with no tax consequences and your growth is tax-deferred. However, realize that you will pay ordinary income taxes when you withdraw the funds. 

“Lastly, an ‘out-of-the box’ idea would be a really good buy on a piece of income-generating real estate. Whether it be a farm, a commercial building or a rental, if you can find a great deal in this market, it may make sense to borrow the funds to purchase and consider the monthly note as an investment deposit into your retirement nest egg. Some day when you retire, you will own a nice income-generating property that you can supplement your income with or sell to reinvest in an income producing portfolio. Just make sure the property does not become a burden or liability, that the valuation is good and that the income from the property along with your personal monthly payment is more than enough to make the note. There is also risk associated with the loss of a renter so don't over extend yourself to the point that you could not make the payment should you lose a tenant.”

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