No matter how young you are, the time to start saving for retirement is as soon as possible. With so many options for investing, it can be daunting to pick the best options for you.
As the NY Times states, starting is the hardest part and you should start, even if you begin with a small amount, (https://www.nytimes.com/guides/business/saving-money-for-retirement). Their article covers a wide variety of retirement options while we focus on a few to make it simpler to understand how a good portfolio is set up for retirement.
Three key investments are the best ideas for those of us planning on retiring. These include stocks and bonds, a 401 (k) or I.R.A. plan, and physical investments. Below you will find information on each of these investment types, why they are good for retirement, and how you would invest in them.
Stocks and Bonds
The most obvious choice when talking about investing in stocks and bonds. As the most common thought regarding investing, they can also be a little confusing. Most people are unaware of the differences between the two and how they are used to make a solid investment portfolio for retirement. To put it simply, stocks represent partial ownership of a company while bonds are a loan to the company or government from you.
With partial ownership of a company, a stock’s price is dependent upon company performance. When a company does well, the price of its stock increases and vice versa. Owning stock can be volatile depending on the area of business you invest in and the company itself. While a stock has the potential to rise, it also has the potential to fall. With bonds, you are investing your money for a certain period in a company or into the government. At the end of the period, you are given the money back with interest.
As a bond accrues a set amount of interest, the prices of stocks may grow gradually as a company grows. Where stock may return more is when a company does very well. There are many reasons a stock could see a sudden price rise, but once the price has hit a point in which you wish to sell, you are allowed. Bonds are at risk if a company goes bankrupt and is unable to settle its bonds.
Stocks and bonds have a certain amount of risk with each and there is a safe investment percentage with both depending on age. You can read more in-depth about stocks and bonds at NerdWallet, here, but the percentages break down to the percentage of stocks equaling 100 minus your age. If you are beginning your retirement savings at 22, then you should invest in 78% stocks and 23% bonds whereas someone older should invest more in the less risky bonds, ensuring their investment will be steady for their approaching retirement.
Simply put, if you are young, stocks are worth investing in because they have a high risk/high reward aspect. Elderly investors should focus more on bonds because the lower risk is a safer option when closing in on retirement.
IRA and 401(k) Investments
As with stocks and bonds, there can be some confusion surrounding these retirement plans. In both plans, individuals invest a certain amount into a fund that they can use at a later point. The key difference is employment requirements. 401(k) plans are generally implemented by employers, though some do not offer these plans. IRAs are individual retirement accounts and are generally handled by only the employee. Both plans can be matched by an individual’s employer so you may check with yours to see what benefits they offer for each plan.
There are a few types of 401(k) plans, including one for self-employed individuals. Though it does not include the self-employed 401(k) plan, Investopedia provides more information about the subjects we will broach in this section.
401(k) plans have a higher contribution limit than an IRA plan. Both traditional and Roth IRAs have a maximum limit that can be contributed whereas 401(k)s have a much higher upper limit, $20,500 as of 2022 with an additional $6,500 if a participant is over 50. An IRA has a limit of $6,000 for those under 50 years old and $7,000 for individuals over.
The large gap between contribution limits can mean a large difference in the ending amount of both types of accounts and should be taken into account when choosing between the two. Ideally, if you were to choose to contribute to an IRA, you would contribute to a 401(k) once you hit the contribution limit of the IRA.
Another difference is the taxes on each plan and when they are paid. Neither have tax deducted while they are growing with interest and contributions. Most IRAs offer tax-free withdrawals after retirement has begun. Withdrawals from 401(k) retirement plans are taxed at the withdrawal by the Internal Revenue Service (IRS). There are exceptions to this, dependent on an individual basis.
These contributions can usually be made automatically with the help of your employer so you can save without any effort. This alone makes retirement plans a solid investment for some who may have a shorter memory than others.
Physical Investments for Retirement
When discussing investments, most people focus on stocks and bonds or retirement plans. One of the most obvious choices, though, is cash investment. While you can go into a store today with money in your pocket to buy necessities, the same cannot be said about a stock or money in a retirement plan. One of the best physical investments you can make for retiring is in gold or other valuable metals.
Real estate can catch fire. Oil can dry up. Gold can melt and be reformed into itself again. Some of the best gold investment companies are the most forward-looking investment companies. They look to the Earth rather than the stars to find answers regarding the future and where they should put their money.
Gold is an incredible investment opportunity. Where stocks and retirement plans are intangible, you can hold a piece of gold in your hand. It has weight and with weight comes a solid value in our mind. Should the world ever be plunged back into darkness, gold will still be highly sought after for its malleability and conductivity.
Humans have been investing in precious metals since they first caught our eye. The first jewelry can be traced back to 25,000 years ago. Humans have been investing time into crafting beauty with these treasures for thousands of years and will likely not stop any time soon.
With an investment in gold, you can see how your investment rises or falls just like stocks. Gold, however, will always have value where a share in a company is gone if the company dissolves. It might not gain interest like a retirement plan, but we will always have an interest in beauty and anything that can catch our eye. By investing in gold, you are investing in the very basic biological need of human minds.
This sort of investment may seem daunting but is as simple as looking at old jewelry. Gold has become increasingly available lately and purchasing a bit here and there can lead to a surprise mass of wealth in a short amount of time.
Should you choose to invest in gold, it is ideal to also invest in a safe place to keep your gold. This could be a secure safe, a safety deposit box at your bank, or even a vault if you have access to one.
Investing for Retirement
Now that you have decided to invest in your retirement, it is important to look forward to those precious days ahead. While others worry about the future, with the right investment portfolio, your worries will be how you want to spend your day. Click here for a great article on some of the finer aspects and activities available to you in retirement.
With your future in mind, take advantage of stocks and bonds. If you are young, invest in the more volatile stocks, while older men and women should take advantage of the reliability of bonds. Both have risks, but a good amount of each in various industries can lead to a stable source of wealth in retirement.
In retirement, you can also rely on your IRA and 401(k) retirement plans. While withdrawals from these plans may be taxed, depending on the plan chosen, they are a great asset to build wealth available for retirement. They will build steadily as you work and some employers are willing to match contributions so even if your contribution caps out, you can get a little more into your savings.
Lastly, physical assets are an incredible investment. While some carry more risks than others, the one physical investment that has stood the test of time is gold. With gold, you will find timeless beauty. It is easy to invest in and can fluctuate like stocks, but humans have been dealing in gold for millennia. With a rise in the availability of gold and how useful it is becoming as a conductor, the price of gold is likely to only rise further in the future.
With these investment options in mind, choose where you invest in your retirement wisely. These are smart decisions you can make with your money that will leave you living an easy life once you are done working. Retirement is not as lofty a goal as some think. It simply takes good monetary decisions and a little knowledge of how to make your money work for you.
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