15 Best Retirement Investments
15 Best Retirement Investments
You’ve worked hard your whole life to reach the point of retirement, but that doesn’t mean you get to take your feet off the gas now. As long as you have money coming in from an employer or your own business and you have financial obligations such as college tuition for your kids or even your retirement savings, it’s up to you to keep working on making sure your money will be there when you need it in retirement. Here are the 15 best retirement investments that could help you make that happen.
1) Roth IRA
Retirement savers looking for a way to save money in a tax-advantaged might want to start with Roth IRAs. Contributions to a Roth IRA are made on an after-tax basis, meaning that savers won’t get a tax deduction when they contribute; however, they will not have to pay taxes on gains and earnings within the account when they withdraw their funds in retirement. What’s more, contributions can be withdrawn at any time without penalty. For these reasons, Roth IRAs make great vehicles for long-term savings. There are two disadvantages to the Roth IRA. One being there are limited contributions, meaning you can only save $6000 per year. If you’re single and you make over $150,000, you’re disqualified from having one. The last disadvantage is that the investment is in the Stock Market. When the Stock Market takes a hit, so will your investment.
Today, many employers offer 401k plans to their employees. These plans allow individuals to save for retirement with tax benefits, which means your money grows faster than if it were sitting in a traditional savings account. If your employer doesn’t offer a 401k plan, there are several other options available to you. If you don’t have one already, open an individual 401k account today. Once you have your 401k account, you need to choose how much of your income will go into it. The amount that goes into a 401k depends on factors like age and financial goals.
3) Mutual funds
If your 401(k) plan doesn’t offer mutual funds, then I recommend that you consider investing in them through a traditional or Roth IRA. These are tax-advantaged accounts that can be used to invest in stocks, bonds, and other securities. Most mutual funds offer instant diversification, as opposed to buying shares of individual companies, and no commission fees. What’s more, it’s easy to open up an account online with a low minimum investment. For example, Fidelity Investments offers its lowest-cost share class for as little as $2,500.
4) Variable annuity
Variable annuities, or VAs, are insurance products that allow an investor to invest in mutual funds and other investment vehicles while offering added tax benefits. VAs typically have guaranteed rates of return that are pegged to indexes like those used by government-sponsored entities (GSEs) and corporate bonds. The downside is they carry higher fees than similar mutual funds or investment accounts; thus their average annual returns tend to be lower than other options. That’s why it’s important to shop around for a VA with low management expenses and charges.
5) 529 plans
529 plans are state-sponsored investment vehicles for college savings. They’re tax-advantaged because money inside them grows tax-free, and withdrawals can be made tax-free when used to pay for qualified education expenses. In most states, contributions are also deductible from state income taxes. The biggest downside is that these accounts aren’t available in all states. Also, while they’re often promoted as a way to save for future college costs, they may not make sense if your child won’t attend an expensive school or if he or she will qualify for enough financial aid to cover tuition without your help. It’s important to weigh your options carefully before opening one of these accounts. And remember: You can always change your mind later, you aren’t locked into any one type of account forever.
6) College savings plan
A college savings plan is a special account for saving money for your child’s higher education. This account lets you set aside money tax-free to help your child afford a bachelor’s degree, or even graduate school or vocational training down the road. Unlike some other investment vehicles, contributions to a college savings plan are generally free from federal income taxes and any early withdrawal penalties. Typically, there is no minimum contribution requirement; as soon as you put in $50, it counts toward your annual limit.
IRAs allow individuals to contribute funds up to $5,500 per year. These contributions, which are made with pre-tax dollars, can be invested in a variety of assets including mutual funds, ETFs, and individual stocks. You won’t owe taxes on withdrawals until you reach age 59.5. That makes IRAs an attractive option for anyone who doesn’t mind taking money out of their pockets today for a later reward. If your employer offers a 401(k) plan or similar vehicle, that is likely your best bet for saving for retirement.
8) Stocks and bonds
What are Stocks and Bonds? A stock is a share of ownership in a company. In exchange for investing money in a company, shareholders receive shares that pay dividends (if they’re public) or extra equity in their business. The share price of stocks goes up and down based on how well or poorly the underlying business is doing. Stock prices go up when investors expect future earnings to be better than expected and go down when expectations are lower.
9) Traditional pensions
In 1980, 35% of private-sector workers were enrolled in traditional pension plans; today that number is 5%. It’s a good idea to have a strong pension plan so that you have enough money to live off of in your golden years. If you do not have an employer-provided pension, consider contributing to a Roth IRA or 401(k) as soon as possible. Both will allow you to save for retirement tax-free and give you access to your funds without penalty before age 59 1/2. You can also rollover funds from a 401(k) into a Roth IRA once you leave your job.
10) Cash-balance plans
Cash-balance plans combine elements of defined benefit and defined contribution pensions. Under a cash-balance plan, all employees’ accounts are valued every quarter and credited with interest. Employees receive a lifetime income benefit when they retire based on these account balances. The Employee Retirement Income Security Act (ERISA) makes cash-balance plans attractive to small businesses because they allow companies to deduct contributions above IRS limits that apply to money purchase pension plans and profit-sharing plans.
11) Solo 401(k) plan
Starting a business comes with a laundry list of challenges, but it also offers several lucrative tax benefits. One such benefit is that owners can contribute up to $55,000 annually to an individual 401(k) account. If you have employees, they can contribute up to $18,000 a year or 25 percent of their salaries. Owners and employees must each contribute 3 percent or more every year.
12) SEP IRA
Traditional IRAs are great for those who have maxed out on their employer-sponsored 401(k) plans and can spare an extra $5,500 annually. SEP IRAs, however, have a lower annual contribution limit (that starts at just $400 per year) but are often more advantageous for small business owners.
13) Spousal IRA
A spousal IRA is a great way to pass part of your retirement savings onto your spouse. If he or she hasn’t saved much, they could wind up with a sizeable chunk of money just under being married to you. However, there are some drawbacks: Your spouse will have to pay taxes on withdrawals from an IRA before age 59 1/2 and can only contribute $6,000 per year.
14) Fixed Indexed Annuities
Fixed Indexed Annuities are issued by insurance companies and typically provide a guaranteed rate of return over a set period, usually over several years. The Guarantees and Indexed strategy protect you from market volatility (loss of money) typically experienced when someone is is invested in stocks, 401Ks, IRAs, Roths, and mutual funds
15) Purchase Rental Real Estate
Owning rental property is a fantastic way to earn passive income and build wealth in your golden years. Owning real estate can also help you generate income during your working years. If you want to buy property as an investment, it’s important to learn about different kinds of real estate, financing options, and potential risks. Buying rental property isn’t a guaranteed moneymaker, but it can be an excellent way to create more security for yourself in retirement.
Investing is a crucial part of planning for your golden years, and when done right, can have a dramatic impact on your post-work life. While no one wants to think about leaving their job, it’s smart to begin thinking about how you’ll fund your retirement now rather than later.