What Retirement Investment Plan is Right for You?
As employees approach retirement, they often wonder if they have enough in their pension plans or savings account to pay for the rest of their lives. What will they be doing during retirement? Will there be enough to pay for any lengthy hospital visits? Choosing the right plan will allow employees to plan for the future, whether it is to travel the world, purchase a second home, or pay for the grandchild’s college tuition.
The first retirement plan is an employer provided account. Many careers have this type of account that matches whatever funds the employee chooses to save from their paychecks. For example, if an employee chooses to save 4% of their paycheck for 30 years, their employer will do the same. That will provide a combined 8% of the employee’s salary every year for 30 years. This percentage should reflect all raises that the employee received throughout their tenure with the company.
If an employee were paid $30,000 every year, they would have $2,400 contributed to their retirement fund each year. That would give them $72,000 when they retire. This number would increase as the employee increases their salary or number of years worked for the company.
The second retirement plan is purchasing stocks. This can be a risky venture, if the buyer only wishes to invest in high yield and high-risk stocks. It can be risky when the markets fluctuate up and down, as they typically do. To counteract the affects of the fluctuations, buyers differentiate their purchases between low-risk, medium-risk, and high-risk stocks. This plan can be used in tandem with the first plan to create more retirement wealth that will sustain the employee through their life.
An example of an employee’s potential portfolio:
- 50 percent low-yield stocks
- 30% medium-yield stocks
- 20% high-yield stocks
The employee would watch as their stocks grow. The key with stocks is to sell or purchase when the buyer feels comfortable doing so. Knowing the market is important, but if the market is confusing, a financial adviser at the employee’s bank or a Certified Public Accountant would be able to advise the employee on what stocks would be best to purchase and when. Purchasing stocks in a bear market would be advisable for an employee looking to buy stocks because the prices are lower than they would be. Selling in a boar market is advisable to the employee so that they gain as much profit as they can for their retirement funds.
The third retirement plan is to set up an IRA or IRA Roth savings account at the employee’s bank. This type of account is voluntary and will be useful to the retiree when they want their funds. This is an account in which the employee can save up to $5,500 every year. If the employee is over 50, they can save up to $6,500. The Roth IRA accounts are tax-free because the money is coming from the employee after they receive their paychecks. However, if the employee chooses to have their funds deducted before receiving their paychecks, they have a traditional IRA and it will be taxed. This account may be withdrawn at anytime when the retiree chooses.
As with everything, the needs of the employee must be the driving factor of what fund or combination of funds are used to plan for retirement. All three of these accounts can be used, if the retiree chooses to use them. So, choose wisely, choose quickly, and choose to invest in your dreams and yourself.