It’s never too early to start thinking about retirement. If you want to enjoy the time after you finally stop working, you’ll have to think about money early on. Many people save for retirement but are clueless as to what to do with the money they’ve saved. The fact of the matter is that you have to ensure you have money during your retirement. Many people consider investing the money they have saved up, in order to maximize the return on investment and have enough funds to enjoy when they actually retire. However, where to invest is the main issue.
People are often concerned about making an investment mistake that will cost them their retirement fund. It’s good to be vigilant, as a simple mistake can indeed cost you more than you’ve bargained for. However, not investing can be as bad as making an investment mistake. It would be a shame to reach retirement at last, only to discover you don’t have enough funds to sustain yourself. That being said, here are a few smart ways to invest your retirement money.
Save enough to begin with
The first smart choice you should make concerning retirement investment is to save enough money. Experts suggest that allocating at least 10% to 15% of your income salary aside is quite enough for a financially sound retirement. Furthermore, during your employment, you should ensure that your employer is supporting your retirement plan or that you’re eligible for an employer-sponsored retirement plan.
For instance, as you may already know, a 401(k) is a salary-suspension contribution on a pre-tax or post-tax basis. Employers often match contributions or add features, such as profit-sharing, to the plan. In addition, there’s also a 403(b) retirement plan, which is also a tax-sheltered annuity (TSA). This retirement plan is offered by employers to employees in nonprofit organizations, medical and educational institutions and so on. Nevertheless, it’s important to save enough money so that the employer can match your contributions, which will ensure your financial stability during retirement.
Choose an individual retirement account (IRA)
Many people choose to save money on their own, without help from employers. Also, many people have incomes below being eligible for an employer-sponsored retirement plan. That’s where IRAs come in handy. Individual retirement accounts allow people to save as much as they want for retirement, as well as choose their own tax benefits that suit them best. Investing in such accounts may be ideal if you don’t want to bother with other investment opportunities.
There are various types of IRAs for you to choose from, but the most common options are traditional IRA and Roth IRA. Traditional IRA allows you to make tax-free contributions to your retirement account, but withdrawals are taxed at regular tax rates. On the other hand, Roth IRA contributions are taxed while withdrawals are tax-free. What’s more, traditional IRA requires you to make withdrawals at the age of 70, while Roth IRA can be left to grow as much as you wish if you have other incomes to cover the expenses.
Investing in real estate
People often choose to invest retirement money into the real estate market mainly because they are familiar with the concept. Real estate also involves less risk than other investment types, especially if you opt for rental income. Other possibilities to invest in real estate include buying properties and holding on to them until the price goes up on the market, which is when you decide to sell the property.
Also, you can purchase properties and invest in renovations to boost their price before you sell them. In any event, if you’re not familiar with how the real estate market works, it would be wise to seek out property investment advice before you decide to invest. The most common investment method is purchasing a property and renting it out. That way you can still sell the property eventually if you wish, or enjoy rental income and allocate it into your retirement fund.
Investing in stocks and bonds
Another option you may choose for investing your retirement money is stocks or bonds. Bonds represent a form of a loan, which you give to individuals or companies. Eventually, the loan must be repaid with a small interest rate percentage. The return on investment isn’t significantly high with bonds, but it’s still something. On the other hand, you can choose to invest in stocks. Stocks, otherwise known as shares or equity, are an investment type where you purchase a small percentage of a certain company.
Simply put, you become an owner of a small portion of a company and all of its assets. The price of stocks is determined by the company’s financial performance and success on the market. If the price goes up, you can sell the stocks or hold on to them and enjoy income from dividends. The stocks and bonds market holds significantly more risk, but if you have experience in this market you can easily work it in your favor and maximize your retirement fund.
Investing your retirement money can be a risky business, especially if you don’t know what you’re doing. Experts suggest everyone should diversify their investment portfolio, in order to mitigate and minimize the risks. However, if you’re uncomfortable with investments, there are still other options available that won’t cause you to lose any sleep over your retirement fund.
This post was graciously provided by Cooper Klein. Cooper is an entrepreneur with a degree in Marketing. He’s interested in real estate and home decor. In order to spend more time with his family, Cooper decided to take a break, and he’s currently working from home as a blogger for Smoothdecorator and several other sites. You can find him on Twitter.