Category Archives: Retirement Investments

Are Annuities Right For Your Portfolio

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Choosing investments, like annuities, can be a daunting task, especially when thinking about retirement. Without a financial background most people are too afraid to try investing in annuities and therefore miss out on earning money, by letting it sit in a low interest savings account. By deciding a few simple things, you too can know how to compare annuities and decide which ones are right for you.

An annuity is a contract with an insurance company that says you will pay them a certain amount for a stated number of years, and then afterward, they will start paying you for a specified number of years or until death (depending on the contract). There are many different types out there. Some let you pay them in a lump sum, others might allow early withdrawals with penalties (like an IRA), and still there are those which will pay you based on the market or by a previous agreement.

Confused? Don’t be. There are first a few things you must decide that will narrow down the playing field quite a bit, and help you in knowing how to compare annuities. One is liquidity. Do you see yourself needing cash before the payout? If this is true, you should choose one with a low early withdrawal penalty. In some cases, the lower the penalty might mean a lower rate returned to you.

Another thing to think about is how much risk you want to take. With risk comes rewards, but a sure thing is a sure thing. If you are playing it safe, getting fixed income annuities might be for you. This means that you are guaranteed to get a return of a certain amount, regardless of what the market is doing. Now, if you can afford (and have the heart) to take a risk, you might want to try the variable kind. This type is tied to the market, so you stand to make a lot more money if the market goes up, however a lot less if the market goes down.

Then you must consider how you prefer to have your payments, whether it is a little over a long period of time (great for those of us that have trouble budgeting), or maybe in a lump sum (great if you want to roll it over into a short term investment later in life). The contracts will vary as some will give you money until you die, others might only pay out for 5 years, and of those, which one will continue payouts to a beneficiary.

There is no right answer for any of these questions as each person and their situation is unique. Once you know what you will be right for you, your options will be narrowed so you can much more easily compare and contrast. Or by taking what you want to a qualified financial advisor, they can talk you through the whole process.

Now that you know how to compare annuities, hopefully the prospect isn’t quite so fearful anymore. The earlier you start, the better, for now is the time where you might have some extra income and let it pay you later in life when you won’t have that same cash.

How To Invest For Retirement On A Budget

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Budget is always a key consideration

Obviously, not every individual has the financial resources for investing in a financial instrument. In some cases, it is not a matter of money so much as it is a matter have having sufficient knowledge of the investment industry. The advantage to investing is that a down payment is not always required like it is with purchasing a car or home. Additionally, the cost of living and unexpected expenses can deter a person from investing as well.

Savings accounts – the basic investment strategy

No matter how much money you feel that you can afford putting towards investing, most people can muster up enough money every month to sink into a standard passbook savings account. Despite the fact that the average rate of return is typically lower than other investment vehicles, this is virtually a risk-free method of investing towards retirement on a tight budget.
401(k) plans

There are a number of benefits involved with investing in 401(k) plans. If you have a steady job, it is even easier due to the fact that many employers can set up your investing in one based on payroll deductions. Suffice it to say, this makes things a bit more convenient even if you have a strict budget to follow every month. Another key benefit to 401(k) investing is that the money is tax-deferred until you decide to withdraw it.

You can also search online for a good 401(k) plan if you are not comfortable with the one that your employer is offering. However, you should know that your employer has probably done a lot of research prior to settling on a plan to offer their employees. If you do decide to look for a 401(k) plan online, just make sure you thoroughly investigate the company that is promoting it.
Other investment vehicles

Where 401(k) plans are concerned, over 25 million Americans today work for an employer that does not offer one. However, that doesn’t necessarily mean that you cannot find another investment instrument that will fit within the constraints of your budget. The following are two viable alternatives to consider:

ETF’s or Exchange Traded Funds – this is a viable solution for those individuals who are a bit intimidated by trying to select which stocks to purchase as well as anyone who does not have the funds available to hire a financial planner or investment adviser. ETF’s are similar to index mutual funds in that they are traded like stocks are. Not only do they provide you with one investment comprised of numerous stocks, ETF’s are also an excellent portfolio diversification instrument.

Investing with an online brokerage – although you do have to be careful when pursuing this way of investing, many individuals today have gone this route in order to save on broker commissions. Unfortunately, not all of these online brokerages are reputable. Just be very careful when going this route and make sure that you investigate the online broker as thoroughly as you possibly can.

Is A Roth IRA Right For You?

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A Roth IRA, or individual retirement account, allows tax payers in a certain income bracket and work status to secure a retirement plan. The rise in the participation of 401k plans shed light on options for entrepreneurs and employees without the same option. Questions soon began to circulate while people sought the answer to what is a Roth IRA and why should I open one?

The plan is subject to withdrawal penalties for five years before becoming eligible for tax-free distribution in some cases. This plan is also restricted to those under 70 and a half years of age. A tax shelter such as an IRA offers a tax deferred way to secure a comfortable income for future living expenses after retirement.

A business savvy individual is going to plan in advance for this time in life. Many employers offer pension plans to employees who opt to participate. Some plan participation include employer contributions of up to a percentage of what the employee contributes. For the individual there are five different types of IRA’s:

• The Traditional IRA
• The SEP IRA
• The Simple IRA
• The Educational IRA
• The Roth IRA

The restrictions attached to IRA’s generally relate to the limitations placed on the amount that can be contributed per year without becoming taxed. The tax and employment status of the individual determines the limitations placed on the chosen plan.

For instance, the Traditional IRA allows for up to $4000 in contributions in a given year for a single person. This type can be tax deductible or non-deductible determined by tax payer status. The account owner can contribute a certain amount to an Educational IRA. The owner is also restricted in the allotment of money to educational resources. The SEP IRA is a good choice for small business owners as it allows the owner to contribute a larger tax-free percentage, although many business owners are starting to choose the Simple IRA in growing numbers. This plan is most similar to a 401k plan.

The benefit of participating in a sponsored 401k plan is the acquisition of an employer contribution, otherwise considered as free money! The benefit to having the IRA version in addition to the saving feature is the option to diversify which is always a very prudent idea.

The ability to establish a portfolio with an IRA without tax penalties is a huge benefit if done properly. This feature allows the owner to make up for the lack of employer contributions with dividends earned from investments. The advice of a qualified professional will educate the owner of the advantages of not only opening and IRA, but including mutual funds to the portfolio for the best outcome in securing a solid financial future. Don’t make the mistake of trying to save money by skipping this step. While you may save on consultation fees, the wrong decision could cost you a great deal of money in the long term.