Retirement should be your time to relax as you savor your hard-earned success. Despite this, 55% of workers in the U.S. say they plan to work during their retirement, primarily due to insufficient savings. As many retirees actually retire at a much later age, you must begin managing your investments to maximize your golden years.
Whether you’re a retiree yourself and want supplemental income or are a forward-thinking person planning your retirement, here’s a list of worthwhile assets and strategies to include in your investment plans.
4 Best Retirement Investment Strategies
Depending on when you start investing, these strategies have varying pros and cons. Choose the right one for your situation by using this list!
1. Traditional and Roth Investment Retirement Accounts (IRAs)
IRAs are primarily for self-employed or freelance individuals without a company retirement plan. It’s a way to save money while avoiding certain taxes. You can start an IRA in most banks.
Traditional IRAs are made up of your pre-tax dollars, reducing your taxable income for the year of deposit. However, you need to pay taxes once you withdraw from the account. Roth IRAs are the opposite, contributing post-tax dollars, but you don’t have to pay taxes upon withdrawal. You’re essentially setting aside cash and other investment returns for retirement.
The primary deciding factor of which type you should get is whether you expect your tax rates to increase or decrease. If you believe they’ll rise, Roth IRAs are better as you pay lower taxes today and avoid the higher taxes in the future. Vice versa for traditional IRAs.
Some cons of IRAs are early withdrawal fees, but certain exceptions exist. These fees can mean this strategy is relatively non-liquid, but they offer an avenue to build wealth over time.
2. Employer-sponsored retirement plans
A 401(k) is an investment plan where a portion of an employee’s paycheck goes to an account with a limit decided by the Internal Revenue Service (IRS). Like IRAs, people differentiate 401(k) plans by when the contributions are taxed—Traditional and Roth.
If you plan on spending your professional life as an employee, 401(k)s are the easiest way to prepare for your retirement steadily. You can even transfer your plan from one employer to the next. The same concerns exist for IRAs and 401(k)s; they both are relatively non-liquid because of early withdrawal fees.
The defined benefit plan is a different employer-sponsored plan, commonly known as a pension. Most employers want to reward their most loyal workers with financial assistance. If you’re lucky enough to work for an employer with a defined benefits plan, ensure you know what you’re entitled to upon retirement.
Pensions have a higher contribution limit than 401(k)s and are more predictable. However, they’re less common because they’re more complex to set up than other retirement plans.
3. Stocks and bonds
While the securities market seems volatile for people looking to grow their wealth, many options for retirees seeking passive and stable income streams are available.
Dividend stocks, for example, pay out a percentage of a company’s profits to shareholders. This stock provides regular income in your golden years, though it can be subject to inflation and market shocks.
Series I bonds are another excellent, low-risk government security with parts of their yield dictated by inflation. However, investors can only buy, with another $5,000 should investors buy them using a tax refund.
A diverse securities portfolio should mitigate at least some of the risks. However, if you’re not confident, you can always rely on the expertise of others via mutual funds or other investment groups.
4. Real estate
You likely have much more money saved once you reach retirement age, so real estate’s most significant barrier to entry—its high initial cost—is mitigated.
Land ownership might come with more responsibilities than renting, but it also allows you to establish a home your family can live in for generations. Your land also consistently appreciates over time, turning it into an investment for your descendants. It’s also a steady income stream if you rent it out.
Properties are a great asset for your portfolio but cost a lot. Plus, property maintenance is expensive.
Living Out Your Golden Years
Despite the joys of retirement, you must remember that reaching this stage of life doesn’t mean a complete stop to investments. To fully enjoy this period, you must plan a financial strategy during retirement. Hopefully, this list will help you decide how to manage your investments.
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