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Retirement Planning > Saving for Retirement

Taking the Self-Directed IRA Route

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This year-end, perhaps more than any other, Americans whose retirement savings have been devastated by the financial crisis are going to be taking stock of where they stand and trying to figure out what they should be doing. One of the most important decisions people may be making is whether they should stick with their traditional IRAs and managed retirement accounts, or whether should they should be managing their own money without a professional’s help.

Craig Holmgren, a mortgage and financial expert with San Francisco Bay- area firm Holmgren & Associates, is one who believes that there is enough anger and resentment out there to fuel a serious move toward solo investing. On average, Americans have lost between 30% and 50% of their retirement savings, he says, so it’s only natural that they are gun-shy of keeping their money in a managed retirement account and are looking for something different.

“People want to take what they have left and keep it in a tax-deferred status by self-directing their IRAs,” he says. “Self-directed IRAs have great appeal because of the tremendous number of available investment alternatives, particularly if you want to buy or invest in real estate.”

Indeed, with property prices gone so far down that they may have nowhere to go but up, and the rental market on a clear rise, many are looking to real estate as the sector to be in. According to Pensco Trust Company, an IRA custodian located in San Francisco, there has been a 23% increase in self-directed real estate investments since 2007. Saunders believes this rise will continue, driven by the retirement savings market. The eligibility criteria for an IRA real estate loan are not that stringent as it is only the property that has to be deemed revenue-generating, he says, and not the creditworthiness of the individual that counts. So at a time when it’s impossible to get a house loan, an IRA loan might be the way for individuals to purchase property, in particular secondary residences.

“Self-directed IRAs were on the back burner, they were kind of hush-hush,” Holmgren says. “Maybe about 90% of peoples’ IRAs were in mutual funds, but overall now, more and more people are interested in doing it themselves.”

Another option some might consider if their retirement plans will allow them early withdrawal is to transfer some of their savings into an annuity like Ameritas’s No-Load Variable Annuity with a Guaranteed Lifetime Withdrawal Benefit, a product that offers a predictable monthly income what and also allows for participation in market upside.

“We have all been deceived and none of us have ever lived through what we’re living through now,” says Mitch Politzer, senior VP at Lincoln, Nebraska-based Ameritas Advisor Services. “There’s a lot of bewilderment and anger but none of it is appropriate enough to not take any action. As fear escalates, people have a tendency to say ‘I am disgusted and I am going to put my money into a CD,’ but where will that get you?”

Politzer believes that in the current context, more people will be looking outside of the traditional managed retirement accounts toward products like annuities. But if people are able to withdraw money from their 401(k)s and IRAs, it is important that they be fully aware of the tax implications, he says, and for this, professional advice is a must.

Corporate America is going through a “regrouping phase,” says Walter White, president of Woodbury Financial Services in St. Paul, Minnesota, and people need to not only see what they can do with what they have left by way of retirement savings, but they also need to reset their expectations. No one can help figure all this out better than a financial advisor, and so “when the dust settles, people will be looking more for that kind of advice and to foster a relationship with an advisor.”

But even while the importance of professional advice may be unassailable, fees are a huge concern these days, says Christine Fahlund, senior financial planner at Baltimore-based T. Rowe Price. As such, advisors are going to have to make crystal clear just how much they are charging and for what.

“We’re definitely going to see people say that given what’s happened, they would be better off with an advisor, and we’ll also see people who will say that their portfolio is down and fees mean more to them now, so advisors need to be aware of that,” Fahlund says.


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