Retirement can be a joyful time of life. You get to leave the daily grind and spend more time doing the things you love with the people you care about. If you’ve saved up enough money to live comfortably, you can live a fulfilling, carefree life.
If you did a particularly good job of retirement planning, you may have enough money in savings to carry you through for many years to come. Even so, it’s wise to keep your money working for you. You’ll need to keep up with inflation, and if you live a particularly long life, you could run out of funds. And then there’s the chance that you could incur unexpected expenses such as long-term care.
So instead of putting the brakes on your investing, it’s best to continue as though you have yet to retire. If you have adequate retirement savings, you’ll only be using a portion of your money each year. There’s no reason that the rest of your money shouldn’t be earning a return for you.
The Best Investments for Retirees
There are many types of investments available, each with its own pros and cons. To find the best investment for your situation, you need to consider your tolerance for risk and the need for access to your money.
You should be able to put most of your retirement funds into fairly long-term investments. If you want to take on very little risk while keeping up with inflation, CDs are a good option. Money market funds and mutual funds are also low-risk. Stocks and bonds are riskier, but if chosen wisely and managed responsibly, they can net larger returns.
Annuities are also popular investments among retirees. Life annuities require the annuitant to pay a premium in exchange for payouts made at regular intervals for the rest of his life. This provides guaranteed income, eliminating the danger of outliving one’s savings. There are also joint annuities that pay out until the last of two people dies, and guaranteed term annuities that pay out for a specified period of time, with payments going to a beneficiary if the annuitant dies.
For money that you want easy access to, a money market account is a good place to keep it. These accounts earn more interest than your average savings account, yet they allow for quick and easy withdrawal of funds. But keeping your entire nest egg in such an account is unwise, because it could be earning much more with other investments.
Retirement should be a time in your life where money is not a major concern. Unfortunately, it doesn’t always work that way. By keeping your money at work for you, you can keep your finances in good order for years to come and have some left over for your heirs.
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When discussing investments, stocks and bonds are often lumped together. Perhaps it’s because both are securities that are issued by corporations. Or perhaps it’s because they both carry a significant amount of risk.
Corporate bonds are debt securities that are sold to investors. They are created for the purpose of raising capital for a company, usually to help it expand and grow. The money raised through bonds is repaid to the bondholders, along with interest. It’s similar to when a consumer takes out a loan at the bank, and must repay the loan in installments that include principal and interest.
Like consumer loans, corporate bonds may be secured or unsecured. For secured bonds, specific assets of the company are used as collateral. If the company defaults on its payments, the collateral may have to be sold to pay investors. Unsecured bonds are backed by the company’s general assets.
Corporate bonds have terms that may be as long as 100 years. Usually, the term is 12 to 30 years. The term is the amount of time the corporation has to repay the full amount of principal plus interest. Payments are generally made every 6 months.
Investors may keep their bonds until they are paid in full, or they may sell them. Some purchase bonds with the intent to sell them and make a profit. In order for this strategy to work, the investor must buy when interest rates are high and sell when they are low.
The risk in corporate bonds lies in the possibility that the company may not be able to repay its debts. If the company files for bankruptcy, its bonds will be worthless. Because of this inherent risk, corporate bonds pay higher interest rates than government bonds.
There is no sure-fire way of knowing whether or not a particular bond will be repaid. But you can get an idea of the amount of risk from the company’s credit history. Moody’s and Standard and Poor’s are two firms that assign credit ratings to bond issuers. Those with good credit ratings can sell bonds with low interest rates, while those with poor credit histories must pay higher interest due to increased risk on the part of the investor.
Corporate bonds are sold through brokers. They may be purchased individually or in bond funds. These funds combine a number of bonds into one package to reduce risk while maintaining a reasonable rate of return. Those who invest in bond funds may keep their shares indefinitely, because the bonds in the fund have different maturity dates. Once a certain bond has matured, it is replaced with another one.
Investing in corporate bonds is risky. But it can also bring an impressive rate of return. Few investors put all of their money into bonds, but most include them in their portfolios along with lower risk investments.
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For some, investing is a way of life. For others, it’s an obscure concept that they’ve never explored. But if you have ever opened a savings account or put money into a retirement fund, you’ve dabbled in investing.
By definition, investing is using our money in certain ways with the hopes that it will make us more money in the long run. For businesses, this often involves purchasing equipment or inventory. For individuals and banks, it usually involves the purchase of financial products.
Take a basic savings account for example. We put money into the account, and the bank adds interest at a specified rate. If we deposit a certain amount of money and leave it there for a year, there will be more money in the account at the end of that year than when we started. This is investing in its simplest form.
There are many types of investments available. They range from very safe to very risky. Some require no minimum amount to get started, while others require thousands of dollars. Here are some of the more common types of investments:
* 401Ks – Most companies that offer employee benefits offer 401K plans. A 401K is a retirement savings fund. Employees agree to have a certain amount withheld from their pay before taxes and put into the fund. Employers often match employee contributions up to a specified amount, and all contributions are invested in a fund of the employee’s choice. The fund is intended to be maintained until retirement, but employees may be allowed to borrow from it. Early distributions result in tax penalties.
* IRAs – These are similar to 401Ks, but they are set up by individuals rather than employers. The money invested has already been taxed unless it is rolled over from a 401K, but there are still certain tax advantages.
* Mutual funds – These funds are made up of different stocks and bonds, and are under the control of professional money managers. This is how many investors get started in the stock market.
* Certificates of deposit – Certificates of deposit, or CDs, require investors to lend money to a bank for a specified period of time. When this time is up, the CD is said to have reached maturity and the investor can withdraw his capital and interest.
* Money market accounts – These are similar to CDs, but investors may withdraw money from their accounts at any time. Higher interest is paid to investors who make higher deposits.
Investing is not just for the rich. There are investment opportunities that virtually anyone can take advantage of, and they are not necessarily complicated. By starting out small and simple, you can get a taste of investing without a great deal of risk. Once you’re comfortable with that, you can move on to investments with greater potential.
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