Retirement Investments

Credit and Debt

In today’s world, the use of credit leaves many in debt. With compounding high interest, debt continues to grow. When life’s circumstances change, this debt can become a millstone if you’re not prepared. Temper spending habits with consideration for the future and retirement living. Instead of incurring debt, work to save for retirement and your future. Add a retirement contribution to your monthly budget.

401K Retirement Investments

One effective way to save for retirement is to contribute to a 401K. You may think you can’t afford to contribute, but consider long-term rewards as you make your decision. Skip eating lunch out once or twice a week and invest the savings. Along with providing for your future, a 401K offers additional benefits such as an immediate tax deduction, tax-deferred growth on your savings and, in many cases, a matching contribution from the company you work for. Employers set up the 401K plan, while the employee determines how much to contribute based on limitations set up by law. This reduces your federal taxable income by the amount of your contribution.

IRAs

Individual Retirement Accounts also offer tax breaks. Traditional IRAs present opportunities for tax-deferred growth, which means you don’t pay taxes on your investment until you make a withdrawal. In some cases, contributions may be tax deductible. IRA investment options include stocks, bonds, annuities, mutual funds or CDs.

One other option worth consideration is Roth IRAs. Contributions made to a Roth IRA are not tax deductible, but the Roth IRA offers tax-free growth, so you don’t owe tax when you make withdrawals.

Retirement Investments for the Self-Employed

Keogh Plans are tax-deferred retirement savings plans for the self-employed. Normally, investors contribute up to 25 percent of net income, with a cap of $40,000 per year, on a tax-deferred and tax-deductible basis. Get professional tax advice when setting up a Keogh plan because set up is more complicated than IRAs or contributions to 401(K) plans. If you don’t know who to call, check with organizations like AARP for recommendations.

Annuities

Investing in an annuity provides choices--deferred or immediate. Annuities are contracts issued by life insurance companies, and many provide a guaranteed death benefit for a spouse or beneficiary. Money can be invested all at once to begin receiving payments right away, or investors can make smaller contributions over time. Normally, a deferred annuity helps accumulate money and an immediate annuity provides stable retirement income. Deferred annuities grow tax deferred; so investors pay no taxes on earnings until they withdraw the money. When funds are withdrawn, income taxes are usually due. Some annuities carry penalties on early withdrawals. Talk with a qualified financial advisor to understand the options and consequences involved with purchasing an annuity.

Plan for the Future

If you’ve squandered opportunities to save and invest wisely, you may be required to work to supplement your income. Financial choices today affect the future. Plan for the future by making retirement investments, and apply the cash management tool of learning to live on a budget. The sooner you implement money management methods, the more benefit you’ll reap by stretching your spending power and reducing credit card debt.

If you’ve started saving later in life and struggle between saving for your children’s education and retirement, choose your retirement. Your children have more financial assistance sources for college than you will have to fund retirement.

In September 2004, Federal Reserve Chairman Alan Greenspan told the House Budget Committee that, “As a nation, we may have already made promises to coming generations of retirees that we will be unable to fulfill." Unfortunately, a large number of people believe the government will provide for them financially during retirement years. Save as if retirement depends on you alone. Then if the government adds to your retirement income, their contribution will be a bonus, not a meager, sole source of income.