Making a retirement plan allows you to invest in your financial security once you retire. It means preparing for your future life today so you can keep achieving your dreams and goals independently even after retirement. While you can save some money for when you retire, investing is the surest way to grow your retirement savings and ensure financial freedom and peace of mind during retirement.
Retirement investing equips you with the resources you need for emergencies in old age and to maintain your living standards. Since retirement can last up to 30 or more years, you may require about 80% of your current annual earnings to retire comfortably. You should start investing for retirement early and wisely. Outlined below are six ways to invest for retirement.
-
Table of Contents
Precious metals IRA
Precious metals IRA investment lets you hold different physical precious metals in your IRA (individual retirement account). It’s among the best ways to beat economic instability while laying the foundation for retirement savings. Note that you can’t just put your money in any precious metal. Rather, only IRS-approved precious metals qualify for Precious metals IRA investment. It has similar tax advantages as traditional IRAs.
When investing in precious metals IRA, you must comply with IRS regulations to avoid tax penalties. The best precious metal to add to your IRA should meet the purity requirements set by the IRS for such investments. Investing in precious metals IRA comes with multiple benefits, including:
- Retirement portfolio diversification: Precious metals are an alternative asset you can leverage to diversify your retirement investment portfolio to reduce or distribute risk
- Shield against inflation: Precious metals are known to withstand inflation and bad economic times, protecting your wealth
- Tax advantages: Self-directed IRAs are tax-sheltered accounts, meaning holding precious metals there won’t owe taxes on capital gains
With the help of this guide by Oxford Gold Group or other related online resources, you can learn everything about precious metals IRA, including how to invest in them.
-
Traditional IRA
Traditional IRAs are an investment vehicle that offers tax advantages to help you save for retirement better. This investment option functions in the following ways:
- Qualifying contributions to Traditional IRAs are made on a pre-tax basis, offering tax deductions that reduce your tax burden in the year they’re made
- The contributions are invested and then left to grow tax-free, which can have a compelling compounding effect in the long term
- Also, income taxes are paid only upon the funds’ withdrawal. At this point, all withdrawals are taxed at the present income tax rate, which could be lower than the one that applied when you were working
Traditional individual retirement accounts can hold various asset types, like stocks, cash, bonds, and more. Owing to this flexibility, you can set your IRA to attain any desired risk-return profile. IRA’s flexibility doesn’t imply that each investment type is permitted. The IRS particularly hinders IRAs from holding collectibles, specific derivative instruments, and life insurance contracts. Note that there aren’t income limits to contribute and open a traditional IRA.
-
401(k) plan
A 401(k) is a retirement savings plan most American employers offer and provides tax benefits for savers. When you sign up for this plan, you agree to have a portion of every paycheck transferred into an investment account directly. The employer can match all or part of this contribution. There are two primary alternatives for saving in a 401(k) plan, each with specific tax benefits. They include:
- Roth 401(k): In a Roth 401(k) plan, contributions are subtracted from income after tax, meaning the contributions come from your earnings after tax deduction. As a result, there isn’t a tax deduction in the year you made the contribution
- Traditional 401(k): With this investment option, employee contributions are taken from gross income, meaning taxable income is deducted from the total contribution amount for the year
With a traditional 401(k) plan, you can contribute as little or as much as you wish. You can also adjust your contribution levels at any time based on your situation. If you start investing in a 401(k) plan early enough, compound interest will help grow your money. With this plan, your 401(k) contributions plus earnings are yours even after changing jobs. You can move it elsewhere or determine your options for leaving the plan.
-
Fixed annuity
A fixed annuity is like an insurance contract that offers investors guaranteed income payments, usually for retirement. When you sign up for this contract, you make payments (one or more) to an annuity firm, which agrees to pay a fixed return on what you contribute regardless of the market’s performance. A fixed annuity allows you to pick between receiving guaranteed payments for a predetermined period or as a lump sum payment. Based on how you want to fund the annuity and start getting payments, you can opt for a:
- Immediate annuity: It gets into the distribution stage and begins making payments within a year of purchase
- Deferred annuity: It doesn’t begin making payments for at least a year after buying. It’s accumulation phase is longer because you can make several contributions over multiple years before collecting the income
You can buy a fixed annuity contract from financial service providers like banks and insurance companies.
-
Real estate
Real estate investments are a valuable option to consider when planning your retirement. It’s a great long-term investment that provides steady development and stability over the long haul. Real estate has a low connection with investments like bonds and stocks, making it a shield against economic downturns. It holds its value better than any other investment during market uncertainties. Real estate investing safeguards your retirement savings from inflation, guaranteeing your future purchasing power. You can invest in real estate for retirement in the following ways:
- Real estate investment trusts (REITs)
- Home flipping
- Buying residential property and renting it out
- Purchasing commercial property to rent
- Buying a vacation rental property
-
Stocks
Stocks are shares in publicly listed companies. Their prices tend to increase over time, making them good investment options for your retirement portfolio. While all stock prices can fluctuate, you have several alternatives to select from based on your risk tolerance. If you’re an aggressive investor, opt for stocks in sectors with high growth potential, like technology. Blue chip companies are perfect for conservative investors. You can limit your stock volatility exposure by investing via diversified equity funds.
Endnote
Investing for retirement secures your future financial freedom. Consider using these tips to invest for retirement.
