Other Retirement Savings Options, Besides 401(k) and IRA

Other Retirement Savings Options, Besides 401(k) and IRA

Besides your 401(k) plan and IRA accounts, you can start investing in the capital market and money market to add wealth to your retirement saving plan. There are a variety of investment vehicles that can drive you to your dream retirement, as long as you well understand the yields and risks they carry along.

I. Stocks

Investing in stocks provides two major advantages. For one, stocks have strong growth potential. If you have a bigger appetite for risk, investing aggressively in stocks can help building your wealth faster. Furthermore, stocks, in most cases, provide the hedge against inflation over the long term.

II. Treasury Bonds

If you are risk-averse and worry more about how to save money than quickly make it, treasury bonds can serve as a safe and stable investment vehicle. Backed up by the credibility of this country and its government, it is nearly risk free. Treasury bonds protect you from stock market losses. One of the main drawbacks is that the rates of returns on treasury bonds are mostly smaller than those of stocks. In other words, buying bonds is not likely to get you rich. Fortunately, trading bonds on the open bond market is an available option—bonds trade hands tens of times before reaching maturity.

III. Mutual Funds

Compared to purchasing a share of stock that grants you a piece of ownership of the company, purchasing a share of mutual fund offers you a collection of stocks, bonds and other securities. Together with other investors, you turn over your management to an investment company. Putting money into a mutual fund is a good investment option if you do not have as much time or expertise in equity research. Professional from the investment companies can also tailor a portfolio according to your risk aversion. Moreover, your portfolios are automatically diversified through mutual funds based on their nature of holding a basket of mixed investments.

On the other hand, you will be charged for service fees for letting experts govern your investment.  Mutual funds do not shield you from the market risks either.


TIPS stands for Treasury Inflation Protected Securities. It is an extremely low-risk security backed by the government and its principal is indexed to inflation. Its interest rate is fixed but the interests that are paid semiannually will come out differently because the principle is adjusted to inflation. You can purchase TIPS directly from the government through the TreasuryDirect system.

V. Real Estate

First and foremost, by law you are allowed to own real estate investment through your IRA. You can directly invest in property such as homes, condos, apartments and improved or unimproved land. You can as well invest indirectly in real estate investment trusts. The biggest advantage of investing in real estate for your retirement is that it offers potentially high rate of return (compared to T-bills), and add more diversification to your portfolio. However real estate investment is also highly risky. The real estate market fluctuates with the economy and consumer confidence. If you invest in rental rather than ownership, you will face high maintenance cost and tenants who do not pay rent.

Some Useful Tips   

While it is very difficult to address all the potential "gotcha's" in managing your retirement accounts, there are some tips that you will find useful.

  1. Before you make any investments, you need to make sure that you are capable of understanding and analyzing stocks. Secondly you need to devote enough time researching and monitoring your investments. It also costs money to pay for brokerage services and diversify your portfolio.
  2. Stock prices are subject to market risks as well as company-specific risks. To tame the price volatility that you are exposed to, you want to diversify your stock picks. As the old wit says, “don’t put all eggs in one basket.”
  3. To oversee your investment in government bonds, you do not have to be a macro economist, but you want to keep close track of the macro economy, in particular any changes in fiscal and monetary policies. For example, bond prices will drop when the Federal Reserve raise interest rates.
  4. Keep in mind that compared to stocks, you do not need a broker or any financial institution to purchase T-bills, T-notes and T-bonds.  The advantage of 0-commissions or fees can be fully exploited based on your own financial condition.
  5. When you hear the term “fixed-income instrument”, what Treasury Bonds are often referred to, you need to be cautious about what “fixed” really means here. “Fixed income” means that the bond yields regular or fixed return. If not protected from inflation, the real return is likely to be changing due to inflation. Moreover, the value of your investment may fluctuate along the movement of your bond prices. If you do not plan to hold the bond to maturity, you will gain or lose from this price fluctuation. In short, your real returns and bond value are not always “fixed.”
  6. Your retirement investing strategies should be adjusted along your career progress and your age. In different stages of your life, you should employ different strategies that not only meet different target returns, but also protect you from different risks that you will be facing. For example, any dramatic move of the market may become a bigger risk to you if you are closer to retirement, but may not be as menacing as when you are still young.
  7. In the early age of your career or when you are still more than 10 years from your retirement, you want to accumulate assets as fast as possible, as much as possible. So building a relatively aggressive portfolio that weighs toward stocks can help you reach this goal. When you approach retirement, your primary focus will be shifted to preserving your wealth.  At this stage, you might consider cutting back on the risky stocks, or your overall stock holding. A bear market can shrink your wealth dramatically. Also pay attention to inflation as you tilt your portfolio toward fixed-income instruments. Inflation dilutes your real return.
  8. Seek assistance from financial experts or wealth management companies. When you are not very confident in DIY your own retirement investment, you can always seek advice from financial advisors. Just make sure that you find one with credibility and good reputation. You can always look up a company at BBB.