The savings accounts of the future have long been the cornerstone of retirement plans.
As the financial industry adjusts to the changing economic landscape, some investors are shifting from traditional deposit-taking accounts to more liquid, low-fee funds.
But some analysts say those savings accounts can’t compete with the high-cost, low yield investments of today.
That means, for now, the best option for many Americans is a traditional savings account, according to an analysis by investment manager Edward Jones.
The firm analyzed data from 401(k) and 403(b) plans and found that the average return for such accounts was just under 8 percent.
That was a far cry from the 10 percent to 14 percent returns investors enjoyed in the 1950s and 1960s, according, in part, to their reliance on traditional savings.
“It is becoming more and more apparent that the best investments for retirement have become more and less reliable over time,” said Edward Jones Investment Research Analyst Kevin O’Brien.
The analysis is part of the firm’s annual Investor’s Index of Consumer and Business Finance, which tracks the growth in retirement accounts in each state.
“While we continue to see a large amount of growth in savings accounts over the last few years, many are not as attractive as they once were,” O’Connor said.
While some investors say they prefer traditional savings accounts to 401(ks), many say that is no longer the best investment for the retiree.
“There are a lot of people that are not willing to put up with the hassle of having to put in a deposit, pay a little bit, and they are going to be the ones who get the most benefit out of this,” said Peter O’Dowd, president of the investment advisory firm O’Donnell Associates LLC in Washington, D.C. O’Hara’s Roth IRA was his main source of income in retirement, and it was not subject to a payroll tax.
But that doesn’t mean his investment was profitable.
In 2014, he put $6,700 into his Roth IRA.
He took a 10.25 percent withdrawal rate.
That’s about the same rate as the average person would have had to pay.
O,dowd also took a 5.5 percent fee, which means he would have paid $9,800 in taxes and fees if he had just deposited the money.
His investment returned about 3 percent in the first year.
“The main problem is that the funds aren’t worth what they used to be, so it makes sense to keep the money,” he said.
For people who want a more stable income, a traditional IRA can help pay for expenses such as a mortgage and other mortgage-related expenses.
A traditional IRA is also good for when you have to sell your house or get rid of assets to pay off your bills, as O’Byrd did when he sold his $1 million home.
He had a $100,000 home-equity loan with a 10-year mortgage rate.
In that situation, he would not have had enough money to pay his mortgage, so he invested in a $1.9 million bond, which was the maximum amount of money that he could put in.
O Dowd added that it is hard to invest in stocks or bonds when you are a student, so a traditional Roth IRA could provide a nice cushion.
“I think the best thing to do is to have the money, but also to have a very solid portfolio,” he added.
O O’Neill also likes the fact that he can invest in a 401(p) and a traditional 401(q).
Traditional 401(qs) allow a person to contribute up to $18,000 per year to an employer-sponsored retirement plan, and a Roth IRA is a much more flexible choice.
The retirement savings options offered by these two types of accounts can be different depending on whether you want to contribute directly to a 401 or a Roth.
A Roth 401(qu) is a Roth plan that allows the user to contribute to a Roth account without an employer contribution.
A 401(aq) is one that allows you to make a monthly payment to your employer but the amount of that payment is not tied to the number of years you have been working or earning.
O Mitchell has been in his job for three years and has a retirement savings account in his 401(a) account.
He started contributing to his 401 at age 37, but the interest rate has since dropped.
He has never had any problems with his account ever since.
“If I was doing a normal investment, I would have gotten in over the years,” Mitchell said.
“But the way I’m doing it now, I think it’s a better option than most of the other retirement plans out there.”
He plans to continue contributing to the 401(r) plan as long as he wants to, even though he said it will be hard to keep up with his