If you’re pondering over the best retirement investments, this guide outlines eight investment options that could suit both those preparing for retirement and those already enjoying their golden years.
How much money you’ll need to retire comfortably varies per individual, depending on the lifestyle you anticipate during retirement. Although it used to be common advice to expect lower living costs in retirement, the rising cost of healthcare and other expenses makes it safer to plan on replacing 100% of your pre-retirement income. Social Security might cover about 30-40% of this need, so the rest should ideally be funded through personal savings and investments. A common calculation for retirement savings goals is to take 70% of your current income and multiply it by 25, aiming for that amount to sustain a 4% withdrawal rate annually.
Optimal Investment Vehicles for Retirement
Investing wisely is crucial to achieving your retirement savings goals. Here are five key options tailored for retirement planning:
- Cash Value Life Insurance
This type of insurance combines a death benefit with a savings component, where part of your premium grows in value. This setup not only provides a financial safety net for your beneficiaries but also allows you to borrow against the accumulated cash value or even sell the policy in a life settlement.
- Stocks and Bonds
A mix of stocks and bonds can balance growth potential with stability. Younger investors might focus more on stocks for growth, gradually shifting towards bonds as they near retirement to protect their savings.
- Mutual Funds and Exchange-Traded Funds (ETFs)
Investing in mutual funds and ETFs, particularly those that track broad market indexes, offers a diversified investment strategy with minimal effort. These funds are excellent for building a balanced portfolio that aligns with your risk tolerance and retirement timeline.
- 401(k) Plans
These employer-sponsored retirement plans are convenient, automatically deducting your contributions from your paycheck and often matching a portion of your contributions. The funds grow tax-deferred, and you have a range of investment options within the plan.
- Individual Retirement Accounts (IRAs)
IRAs, whether traditional or Roth, offer tax advantages that complement other retirement savings efforts. Traditional IRAs provide tax-deferred growth with tax-deductible contributions, whereas Roth IRAs offer tax-free withdrawals in retirement.
Investment Strategies for Retirees
Once you enter retirement, it’s prudent to adjust your investment approach to preserve capital and minimize market volatility. Consider these three additional investment types:
- Life Settlements
Selling an existing life insurance policy in a life settlement can provide a significant cash infusion, which can be especially helpful if your life insurance needs have decreased or premiums have become burdensome.
- Income Annuities
Annuities can provide a steady stream of income throughout retirement, with the option to structure payments according to your financial needs. This can be a reliable supplement to other retirement income sources.
- Rental Real Estate
Owning rental properties can provide consistent income and potential property value appreciation. Real estate can be less volatile than the stock market and may offer a tangible asset that contributes to your financial security in retirement.
Conclusion
Planning for retirement involves considering a variety of investment options to ensure a stable and comfortable lifestyle. By blending growth-oriented investments with more stable assets and considering unique tools like life settlements and annuities, you can tailor your investment strategy to meet your personal and financial retirement goals. Always consider seeking advice from financial professionals to align these strategies with your specific circumstances and retirement aspirations.
