Most of us are not starting to invest for retirement, even if we don’t have a pension that we can rely on when we retire. Social Security won’t allow us to live a comfortable lifestyle. In the end, it’s up to us to support ourselves when we stop working. Investing is one of the most effective ways to reach our retirement goals. Below is advice on how to invest for retirement using the best strategies that have worked for others.
The Big Decision: When to Retire?
Deciding when to retire is the first thing to consider when putting together investment strategies. Your expected retirement date determines how conservative or aggressive your investment portfolio should be to meet your expected needs.
Many mutual funds also manage your portfolio based on a target-date and can be some retirement investment options for you. The advantage of these types of funds is that it diversifies and rebalances your account without you having to do anything other than set this date.
Best Investments for Retirement
Finding the best way to invest for retirement can be hard for beginners, but we agree that the sooner you start to invest for retirement, the more your money can grow.
For example, if you invested $5,000 a year, with an annual average growth of 8 percent, you would have $78,227 after ten years. If you started to invest $5,000 per year, five years earlier, with the same annual growth, you would have $146,621. That’s almost double the amount, making a big difference in retirement.
Best Retirement Plans to Consider
If you are looking for the best retirement plans, you might want to know in detail which one is best for you. As we know, the earlier we start to invest, the better, let’s look at some retirement investment options to consider.
Provided by employers to their employees, financial companies manage 401 (k) accounts and similar employer-sponsored plans. Many employers offer a matching program in which they will contribute up to a certain percentage as you are long as you are contributing at least that much. Take advantage of a 401(k) or similar plan and match your employer’s contributions.
Individual Retirement Accounts are opened through a brokerage. There are two main types of IRAs you can have:
Traditional IRA - Contributions made to this type of account will provide you with a tax dedication to your current income. Funds from these accounts aren’t taxed until you start taking withdrawals.
Roth IRA - contributions are made using money that you’ve already paid taxes on. Qualified withdrawals are treated as tax-free as long as they meet certain conditions.
IRA vs. 401k
The main difference between an IRA vs. 401k is that your employer establishes the 401k plan. If you change employers, you might elect to roll over those dollars to a rollover plan or your new employer’s 401k.
Both an IRA and 401k offer saving and tax benefits, though the rules are different depending on the type of IRA and 401k plan. You don’t have to choose between one or the other. If your employer offers a 401k plan and you have or want to start an IRA, you should do both. That way, you maximize your investment dollars.
Real Estate Investing
Building a real estate investing can be done without buying tangible properties to live or rent out. Real Estate Investment Trusts (REITs) are like mutual funds that allow you to invest in a group of investments that you earn a consistent income. There are also several real estate crowdfunding platforms that allow you to invest in real estate projects. You always have to check many options to find the best way to invest for retirement.
Work with a Financial Advisor
Getting financial advice from retirement plan consultants who can guide you on how to invest for retirement is a great option. They can work with you to discuss your retirement time horizon, how much risk you’re willing to take and help choose the best investments for retirement. Financial advisors can manage your portfolio and other aspects of your finances for a temporary or on-going basis.
An alternative to working with retirement plan consultants is seeking a Robo-advisor. Robo-advising simplifies the investment process without the need for much human interaction. The Robo-advisor uses the same information as a financial advisor who does like your financial goals and tolerance for risk. They build your portfolio and offer lower fees that make it more accessible for everyone.
About the Author
Anjana Paul is a banking professional who is passionate about helping others make better choices when it comes to money. In her spare time she is a freelance writer with years of expertise in the financial industry. She primarily writes about topics such as student loans, building credit, budgeting, retirement and other personal finance topics.