Risk-Averse Strategies for Retirement Savings

The following post is by Amanda Green. Enjoy! 

Saving for retirement is not complicated, but you do have to make your money work for you if you want to realize the greatest returns. Deciding on a retirement plan for yourself should also involve your spouse. Ideally, the two of you would be able to pool your money together and create a plan to replace your income after you are unable to work. Some of these options, like an IRA, are flexible to help safeguard your savings when your income dips.

There are a host of options to choose from, and you should definitely shop around to find the best option for you.

IRAs

An individual retirement account is an investment that you have control over. You pick which companies you’ll invest in over time, and you can divert a portion of your income each year to the IRA. If you’re not covered under any other retirement plans, that portion may be eligible for a federal tax deduction too, making an IRA something of a safe haven for taxes. It’s not going to net you thousands in tax savings, but it will benefit you now and later.

IRAs are advantageous because you can pull money from them as needed depending on the circumstances. When you withdraw, that money is included in taxable income for the year, but you do not have to show proof of hardship. Therefore, IRAs are commonly used as savings vehicles for investments later in life.

Life Insurance

If you have dependents, you should consider investing in simplified issue life insurance. Chances are you won’t die before your 50’s but a whole life policy can help pay for college for the kids. If something does happen to you, a term life insurance policy can payout enough to cover your family’s expenses for many years to come after your passing.

As this simple guide to life insurance points out, this kind of investment is best for people who are not independently wealthy and have families who rely on their income. All policies do require a medical exam, and determining what you need to cover your family, does take some shopping. The payout can take care of a home mortgage or help supplement lost income. In general, try to take a policy that is worth three to five times your annual income.

401k

A 401k is normally offered through a company workplace, but recent changes have opened these plans to individuals as well. The plans began in 1978 to help alleviate some of the burden tax payers faced at the time by deferring their income to later on in life. Depending on the rules of the plan, you should be able to invest before or after taxes are taken out. 401k’s do have severe restrictions when employees wish to withdraw funds, often restricting withdrawals until the employee ages to 59 ½.

Annuities

Purchasing annuities is like purchasing insurance that is guaranteed to pay out at a later date. It starts with you making an investment into the annuity, then on the pre-determined date it matures and payments can be dispensed. From there, you have the option of receiving income monthly, quarterly, or annually. In some cases, you can also accept a lump sum payment.

Annuities are great alternative retirement income because you can arrange your payment structure to cover you for the rest of your life if you need to. The money you invest grows tax-deferred, but if you are planning on investing in an annuity you should thoroughly research the plan. Annuities can be expensive, which may create a scenario for debt in the short term.

Mutual Funds

Mutual funds are basically a pool of funds that come from many investors. Funds invest in securities such as stocks, bonds or money market assets. A mutual fund manager uses the fund’s capital to make capital gains, which translates to income for the fund’s investors. Most banks have mutual funds you can invest in, and mutual funds are open to anyone who wishes to contribute.

Tips on Investing

If you want to get the most out of your investments, plan to manage several at a time. You should not rely solely on a Roth IRA or 401k, just like you don’t want to pool all of your money into a mutual fund. You should take percentages of your cash and move it around to your investments, letting your money work for you over time. You’ll gain more over time and you won’t have as much trouble moving your money around when you need it.