Where To Invest Retirement Funds


Keep Some Safe Investments

Money Guru: Where to invest your retirement fund

You always want to keep a portion of your retirement investments in safe backup plans. The primary goal of any safe investment is to protect what you have rather than create a high level of current income.

All retirees should have an emergency fund. This account should not be included as an asset available to produce retirement income. It is there as a safety net or something to turn to for unforeseen expenses that may come up in retirement.

Where Should I Put My Money Before The Market Crashes

Savings Accounts

They are the safest vehicles for your money. The Federal Deposit Insurance Corp. and the National Credit Union Administration insure your money in savings accounts, checking accounts, certificates of deposit and money market deposit accounts up to $250,000 per depositor, per bank.

Buy Rental Property To Invest For Retirement

Like dividends, real estate is often thought of as a way to provide consistent income regardless of market performance. While you can also invest for retirement with real estate, keep in mind that real estate investing is not for everyone.

Though rentals can provide regular cash flow, you also face expenses associated with maintaining your investment properties. That means youll need to earn enough from rent to cover your mortgage and damages and repairs. You can minimize some of the more onerous aspects of real estate investing by hiring a management company, but that also decreases the overall returns youll earn.

If youd like the benefits of investing in real estate with less of the hassle, consider buying share of a real estate investment trust . REITs are groups of income-generating real estate properties that historically have paid higher dividends than stocks and even bonds.

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Investing In Fixed Income Funds

When building a portfolio of mutual funds, the term “fixed income” generally refers to the portion of the portfolio that consists of funds that are relatively low in market risk. Instead of generating income through market swings, investors earn income through interest payments. The rates of return won’t be as high as stocks most years, but the overall goal for the fixed income investment strategy is to generate stable and predictable returns.

Since the general fixed income strategy is to generate a reliable source of income, these investment types can include bond mutual funds, money market funds, Certificates of Deposit , and various types of annuities for the fixed income portion of your portfolio.

Dont Forget About Taxes

What You Should Know About Retirement Investing

Finally, as you tote up your retirement savings, remember that not all of that money is yours to keep. When you make withdrawals from a traditional 401-type plan or traditional IRA, the IRS will tax you at your rate for ordinary income .

So if youre in the 22% bracket, for example, every $1,000 you withdraw will net you just $780. You may want to strategize to hold onto more of your retirement fundsfor instance, by moving to a tax-friendly state.

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Separate Needs And Wants

Fish then advises another step in creating lifetime income in retirement separating ones needs versus ones wants. This type of retirement income strategy is also called a Flooring Retirement Income Strategy or essential vs discretionary.

Your income for your retirement spending needs should come from a secure income source. While money earmarked for your wants can have more risk associated with it.

We simply figure out the basic needs or the must haves, and calculate how much is needed on a monthly basis, Fish offers.

We calculate the monthly need and back out what is provided by social security and pension, if applicable. We may utilize a fixed or variable annuity to get to the needed lifetime income, and then use a total return strategy to determine the discretionary expenses, or the want to haves this could be a four to five percent withdrawal off of principal and is looked at annually to determine the proper amount to take off.

That money is moved to cash, so the money for the next year is there to spend and not subject to market fluctuations, Fish says. If we have a bad year in the market, the discretionary expenses can be adjusted.

Of course, it is important to remember that your needs and wants will evolve throughout your retirement. Explore the different phases of retirement and how they impact your spending.

Where Your Retirement Income Can Come From

Whatever your path to retirement, one of the big challenges most of us face is how to pay for it. The money you use to fund your life in retirement will likely come from a range of different sources, such as:

  • Your super
  • Government benefits
  • Your home .

The financial decisions of retirement are often complex. A licensed financial adviser can help you explore your options.

Also Check: How Much Is Social Security Taxed In Retirement

Real Estate Investment Trusts

If you like real estate but arent into being a landlord or mortgage holder, consider investing in equity REITs, which buy, sell, and manage commercial properties such as malls and apartment buildings.

REIT shares are purchased directly on securities exchanges or indirectly through mutual funds, which contain a basket of securities. REITs often pay high monthly or quarterly dividends.

Real estate has provided diversification benefits to investors alongside their global stock and bond positions. REITs provide investors access to a diversified bundle of both residential and commercial real estate around the world that is highly liquid, says Mark Hebner, founder and president of Index Fund Advisors, in Irvine, California.

REITs can be volatile, like regular stocks, so its best not to overdo them.

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Early Retirement – Where to Invest Money

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When you retire, you will need to generate enough income to maintain your lifestyle without exposing your assets to too much risk. There are a few ways retirees earn income like 401 or 403 retirement savings accounts, social security payments, a key source of cash, and some retirees are fortunate to have a defined-benefit pension, an increasingly rare type of plan that pays out like clockwork.

Here are 10 other ways to obtain reliable income while keeping risk in check when you retire.

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To Or Through The Target Date

A target-date fund may be designed to take you “to” or “through” retirement. Generally, a “to retirement” target-date fund will reach its most conservative asset allocation on the date of the funds name. After that date, the allocation of the fund typically does not change throughout retirement.

A target-date fund designed to take an investor “through retirement” continues to rebalance and generally will reach its most conservative asset allocation after the target date. While these funds continue to decrease exposure to equities throughout retirement, they may not reach their most conservative point until the investor is well past age 65.

Upon reaching their target dates, some target-date funds merge into different funds that typically focus on generating income. If your target-date fund is merged into another fund, read the new funds prospectus to determine if it is in line with your investment goals and risk tolerance.

Go The Annuity Route To Avoid Unpredictability

Most retirement income plans are unpredictable. You dont know how long you will live and if the money will last. You dont know if stocks will go up or down. You cant be sure if dividends will get cut or if interest rates will go up or down well, at this point, interest rates can pretty much only go up.

Anyway, if you are concerned about unpredictability, then a lifetime annuity with inflation protection and spousal support might be the way to go.

And, you can now get pretty sophisticated with annuities. In years past, the alternative to riding out a bumpy stock market while trying to create a steady retirement income was to take the money out of the market and put it into an immediate annuity, notes Sean Clark, principal with York Independents, in York, Pennsylvania.

Clarke says there is a different method available for middle class investors today, and is a solution that he uses with great frequency. The solution is an equity indexed annuity with a lifetime income benefit rider, he explains.

This account functions similarly to any other type of investment or deposit account, in which the investor retains full control over the investment, but it also provides for an income guaranteed by the annuity company to last at least as long as the client does. This eliminates longevity risk for the client, and creates a level of confidence in their ability to retire which is unavailable in mostly any other investment.

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Here Are Some Things You Should Factor Into Your Calculations:

Housing costs, including rent or a mortgage, heating, water and maintenance

Health-care costs

Day-to-day living, such as food, clothing, transportation

Entertainment, including restaurants, movies, plays

Travel, including flights, hotels, gas if driving

Possible life insurance

What’s the magic number to hit for a golden retirement?

Over the years, finance experts have said that people need to save $1 million that’s recently climbed to $2 million as the cost of living and age demographics have changed. Some advise that you need to save 80% to 90% of your annual pre-retirement income, or that you need to save 12 times your pre-retirement salary. Those numbers and formulas can be a guide, but they’re not gospel everyone’s situation will be different.

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What You Should Know Before Investing Retirement Money

Weve spent our whole lives working, spending the money we earn and hopefully saving a little too. When we retire, everything we have ever experienced about managing our own finances gets turned upside down. We no longer earn as much or any money from work. We have to figure out how to make do with and maximize what we already have. Instead of saving as much as possible, the new objectives include developing retirement income strategies creating predictable retirement income out of what we have.

Smile! Choose the right retirement income strategy and have fun with retirement!It is like we have been playing one game for the last 40 or 50 years and when we retire, ALL the rules change. To help you learn how to play this new retirement income strategies game, we polled retirement experts. Here are 18 practical plans, rules and tips

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I’m 65 And Looking To Retire This Year Where Can I Find Safe Investments That Will Give Me An Annual Return Of 5% To 7% In Retirement

The short answer is nowhere, assuming that by safe you mean an investment that will provide the return you seek without subjecting your principal to the possibility of loss.

Indeed, it’s safe to say you won’t find any investment today that comes anywhere close to returning 5% to 7% a year that you could realistically describe as safe.

To confirm that’s the case, just look at the type of investments that provide the greatest protection of principal — FDIC-insured money-market accounts, savings accounts and short-term CDs. Even if you shop around for the highest-paying accounts, you’re probably looking at annual yields of 1% or so.

You may be able to get a bit more, say, 1.5% by going to one of those high-yield checking accounts that make you jump through lots of hoops and often limit the amount on which they’ll pay their highest rate to $25,000 or less.

Or you might even squeeze out 2% by locking your dough into a longer-term CD

But that’s about as good as it gets, unless you delve into the murky world of high-yield private secured loans, promissory notes and similar investments that are sometimes touted as a way to get a safe but enticing return in today’s low-interest rate, low-return world. But I don’t recommend using such vehicles as way to earn extra yield for the money you would otherwise keep in savings accounts, CDs or money-market accounts, as they just don’t provide the same level of security.

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Which Retirement Plan Is Best For You

In many cases you simply wont have a choice of retirement plans. Youll have to take what your employer offers, whether thats a 401, a 403, a defined-benefit plan or something else. But you can supplement that with an IRA, which is available to anyone regardless of their employer.

Heres a comparison of the pros and cons of a few retirement plans.

Understand Your Time Horizon

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Your current age and expected retirement age create the initial groundwork of an effective retirement strategy. The longer the time from today to retirement, the higher the level of risk that your portfolio can withstand. If youre young and have 30-plus years until retirement, you should have the majority of your assets in riskier investments, such as stocks. There will be volatility, but stocks have historically outperformed other securities, such as bonds, over long time periods. The main word here is long, meaning at least more than 10 years.

Additionally, you need returns that outpace inflation so you can maintain your purchasing power during retirement. Inflation is like an acorn. It starts out small, but given enough time, can turn into a mighty oak tree, says Chris Hammond, a Savannah, Tenn., financial advisor and founder of RetirementPlanningMadeEasy.com.

Weve all heardand wantcompound growth on our money, Hammond adds. Well, inflation is like compound anti-growth, as it erodes the value of your money. A seemingly small inflation rate of 3% will erode the value of your savings by 50% over approximately 24 years. Doesnt seem like much each year, but given enough time, it has a huge impact.

You might not think that saving a few bucks here and there in your 20s means much, but the power of compounding will make it worth much more by the time you need it.

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Do It For Me Investors

These funds are designed to give you a simple solution to saving for retirement. With a single-fund election, you’ll be invested in a variety of asset classes and your asset allocation will automatically adjust as you age. You’ll have a ready-made, diversified portfolio within a single investment choice. These funds are managed to a specific time horizon – usually a “targeted” retirement date based on when you reach age 65. Your investment portfolio will automatically adjust from aggressive to conservative as you near your selected retirement date.

Tips To Help You Make Your Money Grow In Canada

Canada is a welcoming and promising country that offers opportunities and freedom to immigrants. If you are new to Canada and are interested in either planning for your retirement or completing an important project, there are several investment options available to help you make your money grow in Canada.

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What About A Lockbox Retirement Income Strategy

William Sharpe is a Nobel Prize winning economist and the professor of finance, emeritus, at Stanford Universitys Graduate School of Business. His Nobel was awarded for developing the Capital Asset Pricing Model . He is also well known for the Sharpe Ratio, a number designed to summarize the desirability of an overall investment strategy.

However, much of his later work has focused on retirement income. He has recently created a computer program covering no less than 100,000 retirement income scenarios based on different combinations of life spans and investment returns.

Sharpes systems are a bit complex. You can get a simple summary of his ideas here: The Lockbox Strategy and 10 Other Retirement Income Concepts from Nobel Laureate, William Sharpe.

Retirement Plans For Self

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If youre self-employed or own a small business, you have some further options for creating your own retirement plan. Three of the most popular options are a solo 401, a SIMPLE IRA and a SEP IRA, and these offer a number of benefits to participants:

  • Higher contribution limits: Plans such as the solo 401 and SEP IRA give participants much higher contribution limits than a typical 401 plan.
  • The ability to profit share: These plans may allow you to contribute to the employee limit and then add in an extra helping of profits as an employer contribution.
  • Less regulation: These retirement plans typically reduce the amount of regulation required versus a standard plan, meaning its easier to administer them.
  • Investible in higher-return assets: These plans can be invested in higher-return assets such as stocks or stock funds.
  • Varied investment options: Unlike a typical company administered retirement plan, these plans may allow you to invest in a wider array of assets.

So those are some of the key benefits of retirement plans for the self-employed or small business owners.

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