It doesn’t matter where you are in life, the sooner you start thinking and planning for retirement the better off you’ll be. That's why it's a great idea to look into the best retirement investments and begin making a plan.
A head start on retirement investing gives your money more time to grow. But even if you’re fast approaching retirement, there are many ways to get the most out of your savings.
Take a look at the best retirement investments now and learn how to integrate them into your financial plans.
Retirement Benefits to Consider
Retirement savings plans can be provided through your employer, government programs or private parties. Almost all retirement accounts come with tax advantages and other benefits.
Get in touch with your employer or another financial expert about which retirement savings plans are available to you and which would be the best fit for your personal situation.
1. Build Your Portfolio
Most people incorporate a portfolio of stocks and bond index funds as part of their retirement strategy. You can build your own retirement portfolio through an IRA account or 401(k). You may also opt to work with a financial advisor.
Be sure to make consistent contributions to your retirement portfolio as you work and save. Once you retire, you may be able to live on some or all of the funds in your retirement account. You’ll be able to make withdrawals as you need or pocket dividend income.
2. 401(k) Plans vs IRA Plans
401(k) plans are only available through employers. On the other hand, IRAs are opened by individuals through banks or with a broker. Both accounts offer tax advantages in different ways.
For instance, 401(k) and traditional IRA contributions are tax-deductible, but your withdrawals will be taxed as regular income in retirement. Roth IRAs don’t offer tax advantages on contributions, but your withdrawals in retirement are tax-free.
Other major differences between these 2 retirement options include:
- 401(k)s have higher contribution limits ($19,500 annually or $26,000 for those age 50 or older)
- IRAs have lower contribution limits ($6,000 annually or $7,000 if age 50 or older)
- Some 401(k)s are employer-matched unlike IRAs
- 401(k)s offer limited investment selection
- IRAs provide broader investment choices
- 401(k)s and traditional IRAs impose required minimum distributions at age 72 or age 70 ½ if you reached 70 ½ before January 1, 2020
3. Consider Retirement Income Funds
Retirement income funds are a special type of mutual fund that can provide regular retirement income. Although the value of your assets and your income can fluctuate depending on market conditions, retirement income funds are a hands-off, hassle-free approach to earning income in retirement.
4. Guaranteed Income Annuities (GIAs)
Guaranteed income annuities (GIA) provide regular monthly payments to retired individuals and their families. You can buy an annuity with a single, lump-sum and start receiving payments immediately. Or you might choose to make consistent payments over time towards your annuity and reap the benefits once you retire.
Keep in mind that annuities aren’t investment accounts — they are contracts that can come with complicated legal jargon and other complexities. If you’re considering annuities, make sure to work with a financial advisor or another impartial expert to learn about your rights.
5. Obtain Bonds
Bonds are a debt instrument paid from the investor to the issuer. In return, the investor receives regular payments throughout the bond’s duration. Plus, they’ll receive their principal back once the bond’s duration has ended.
There are a host of different bonds to choose from, including government bonds, corporate bonds, or even municipal bonds. Although bonds can be a great source of retirement income, they can come with various degrees of default risk.
6. Rental Property
Rental properties are a common retirement investment because of the consistent flow of income they provide. However, buying a rental property requires research and market knowledge. On top of that, there are usually maintenance expenses and time-consuming management tasks to undertake.
If you have the time, knowledge and funds required to cover necessary expenses, rental properties can be a solid investment option.
7. Additional Retirement Plans
Although 401(k)s and IRAs are the most common types of retirement savings plans, there are other options out there. These include:
- Pension plans
- Profit-sharing plans
- Cash-balance plans
- Cash-value life insurance plans
- Nonqualified deferred compensation plans (NQDC)
- The Federal Employees Retirement System (FERS)
Aside from the FERS, most of these plans are available through employers or private companies. Many also come with restrictions on eligibility. Get in touch with your financial planning professional, employer or broker to learn more.
8. Safe Investments
You always want to have some cash readily available to cover your expenses in case of an unanticipated event or if markets take a downturn. Safe investments can be an emergency fund such as an FDIC-insured savings account.
Ideally, you’ll want to have at least 3 to 6 months of expenses readily available at all times.
9. Certificates of Deposit
Certificates of deposit (CDs) are issued by banks and offer higher returns than traditional savings accounts. CDs come with a set time duration, usually from 6 months to 5 years, during which you’ll be unable to access your funds. Once the time duration is up, you can redeem your CD for cash and receive your entire principal back plus interest.
Although CDs earn more than traditional savings accounts, they perform significantly lower than investment accounts. You’ll be lucky to find a CD with an APY for 1%, as most are lower than this.
Dividends are a percentage of a company’s profits it pays out to shareholders. Not all stocks offer dividend payments, and some offer higher payouts than others. Nonetheless, dividends can be a great way to supplement your retirement income.
You can receive dividends by purchasing individual, dividend-paying stocks, or by buying into a dividend income fund. This is a type of mutual fund that focuses on providing investors with maximum dividend income.
This is also a good place for a retiree to use a retirement calculator to get the best results. Yes, your brokerage account requires quite a bit of curation, but you should also look at your preferred retirement age, calculate the amount of money you will need
11. Health Savings Account (HSA)
A health savings account (HSA) can be a great way to cover deductibles, co-payments, prescription costs, dental, and other health care expenses. It also comes with significant tax advantages - you won’t have to pay taxes on investment contributions or withdrawals.
Although HSA accounts come with several perks, not everyone will qualify for one. In order to qualify, you need to have high-deductible insurance, not be a dependent on someone else’s tax returns and not enrolled in Medicare.
12. Index Funds
Index funds track an underlying asset or set of investments. Index funds can be a great way to earn high returns and diversify risk levels. Plus, they typically have lower fees than mutual funds. Index funds are one of the best retirement investments and have been recommended by Warren Buffet time and time again.
However, they are comprised of stocks and bonds and thus are subject to market fluctuations and other risks. If you’re going to incorporate index funds into your retirement investment portfolio, make sure you have enough time to allow your investment time to grow.
13. Closed-End Funds
Closed-end funds are similar to mutual funds and trade on exchanges like regular stocks. They can be composed of stocks, bonds or both. They are designed to produce regular income, which is why they can be a valuable asset in an overall retirement investment portfolio.
Closed-end funds offer potential for high returns, but can also be more volatile and risky than some stocks or index funds.
Best Financial Advisors
If you’re wondering about the best retirement investments according to your personal financial situation and retirement needs, it may be worthwhile to consult with a financial advisor. An investment advisor can help you balance all the aspects of your plan from your retirement goals to life insurance and much more.
Financial advisors are professionals that work with you to develop a plan for achieving your financial goals. They can specialize in budgeting, cash flow analysis, insurance needs, investments, and saving for retirement.
With Retirable, you can build a customized retirement plan with assistance from a certified financial planner. You get help from human fiduciaries who:
- Offer dynamic retirement advice and support
- Help you manage cashflow
- Ensure that you’re making retirement plans that match your funds
- Help you make changes to your retirement plans as needed
You will incur around $250 in fees when your account falls below $33,000 in funds, but you are matched with a personal financial planner when you sign up so that you’re always working with the same person. Retirement planning services are comprehensive, and you can also take into account items like end-of-life needs, medical needs, children, grandchildren, perhaps a new business and other needs. Creating a whole retirement plan allows you to see what the future holds and make adjustments as needed.
How to Make the Best Retirement Investment Decisions
Saving and investing for retirement is incredibly important. The decisions you make should be well-informed, and you should never rush into investments without understanding all the pros and cons. You must research both the investment and the sort of results that you can get. This is important because you must know what the endgame of your investment is instead of a dream that you might have been sold in the news.
Take the time to do the research on different retirement plans and investment products. You might also want to consider working with a financial advisor who can walk you through the best retirement investment decisions and provide personalized advice.
Frequently Asked Questions
Where should a 70-year-old invest money?
There’s no single right answer to this question because each 70-year-old has a unique financial situation with different obligations. However, generally speaking, the older you are and the further you are into retirement, you’ll want to redirect away from riskier assets and pivot towards less volatile, income-producing investments.
What is the best age to retire?
Ideally, you want to continue working for as long as you can. The longer you work, the more income you’ll be able to save for retirement. However, many people retire at age 65, since this is when you can expect to start earning Social Security payments.
How much do I need to retire on $100,000 a year?
Generally, you need at least $2 million dollars in a retirement fund to earn about $100,000 a year.