Are you working and saving for retirement? Where should you put your retirement money? There are some tips which will help you build a sizable nest egg.
- Tax-advantaged accounts (401(k) or IRA)
Putting retirement money into retirement accounts can lower the taxable income and save your money from taxation until you withdraw the money. For 401 (k), participants can even choose from various investment choices, such as mutual funds, company stock, index funds, and “target date” funds. In another word, all the money is working for you in the market.
- Constructing a total return portfolio
A total return portfolio is an investment portfolio with average annual return for a long term (10 to 20 years). It was designed to meet participants’ withdrawal need and allows about 4% to 7% take out a year. Participants can use many investment strategies and it is safer to meet near-term cash flow while more growth-oriented to meet future cash flow.
Note that participants should keep the diversity of their investment portfolio and it is better for experienced investors to adopt this approach. It is even more recommended to construct it with a financial advisor.
- Using retirement income funds
Retirement income funds are a special mutual fund which is designed to produce monthly income. It will automatically put participants’ money into a portfolio of stocks and bonds, yet participants can control their principal and access their money all the time.
- Buying bonds
When investors buy a bond, they loan their money to government or companies. In return, they will receive interest income for a period of time and their principal when they bond matures.
Investors can purchase bonds as a package or they can purchase individual bonds. Different bonds have different quality ratings, terms and rate of return. Usually, low quality rating and long-term bonds have higher rate of return. Investors should make a thorough comparation before buying the bonds and they can form a bond ladder from individual bonds to match their future cash flow needs.
Investors can sign a contract with insurance companies to buy the annuities with a lump-sum payment or a series of payments so that they will receive regular incomes for an agreed period of time.
Investors can choose fixed or variable annuities and each of them can guarantee their future income after retirement. Annuities is a good choice for those who don’t have regular income or those who are likely to spend more than they earn.
*Note that investors should always keep some safe investment. All retirees should use a reserve account or an emergency account to protect their saving deposit instead of pursuing a high return.