The United States dollar has steadily lost value compared with other major currencies since the end of 2002. The U.S. dollar is declining largely because the United States imports far more goods than it sells abroad and must borrow to close the gap. In addition, higher interest rates in Europe and elsewhere make those countries’ currencies more valuable and appealing to investors. The recent downgrade by Standard & Poor of the American credit rating is expected to put even more stress on the U.S. dollar and U.S. financial markets.
The impact of a sliding U.S. dollar on an individual’s retirement savings can be significant. In general, a lower dollar boosts prices for imported goods making every day living in the United States as a retiree more expensive. This could also lead to a cycle of inflation since the American consumers purchasing power will be reduced. For example, if you’re counting on $55,000 a year in today’s dollars to cover expenses in retirement 15 years from now, you may find that you’ll need closer to $70,000.
So what can you do? One way is to increase your retirement assets exposure to real estate. Purchasing domestic or foreign real estate with 401K funds is a great way to diversify your retirement portfolio.
Using a 401K Plan to buy real estate, a self-employed individual or small business owner with no employees would be able to diversify his or her retirement portfolio and better protect his or her retirement assets from a falling U.S. dollar. Average real estate prices do appear to rise over long periods and, in recent decades, faster than the rate of inflation. By re-allocating ones retirement portfolio into different asset classes, such as foreign real estate, one would generally be in a better position to deal with a falling U.S. dollar. In other words, the purchase of foreign assets, such as real estate would likely help protect ones retirement assets against a falling U.S. dollar. With an Individual 401K Plan, an IRS approved qualified retirement plan is established. The self-employed business owner would serve as the trustee of the Plan providing the individual with “checkbook control” over his or her retirement funds. In addition, an Individual 401K plan will allow you to borrow up to $50,000 for any purpose, make Roth contributions, while requiring minimal administrative attention. Moreover the Individual 401K plan account can be opened at any local bank.
In a time where the U.S. dollar is trading at a historically weak level, the Individual 401K Plan offers retirement investors with an easy and quick opportunity to increase their retirement funds while protecting their retirement assets from a sliding U.S. dollar.
In a time where the U.S. dollar is projected to further weaken, the real estate 401K offers retirement investors a level of asset diversification and far greater control over his or her retirement investments.