Seniors can work to build their wealth before or during their retirement. It is always wise to consult with a tax professional and a financial planner to determine the best possible path forward for your individual needs. Most people will find it is possible to build their portfolio even with small investments made over time. However, consistency is important. It is also very important to take the time to work with a variety of investment methods that fit your lifestyle and your long-term goals.
401(K)
“In the United States, a 401(k) plan is the tax-qualified, defined-contribution pension account defined in subsection 401(k) of the Internal Revenue Code. Under the plan, retirement savings contributions are provided (and sometimes proportionately matched) by an employer, deducted from the employee’s paycheck before taxation (therefore tax-deferred until withdrawn after retirement or as otherwise permitted by applicable law), and limited to a maximum pretax annual contribution of $19,000 (as of 2019)”. From Wikipedia
This type of account should be set up as early in your work-life as possible, but any time you start is good. Basically you have a percentage of your pay deducted before taxes, and deposited in your account. Often your employer will match funds up to a certain percentage.
For example, my employer matches up to 3%. So I elected to deposit my 3%, and my employer deposits 3%, for a total of 6% of my biweekly pay going into my 401(k) plan. Then, once you retire, you can take funds from that account and use it for living expenses. Bear in mind that it will be taxed once you withdraw it, and there is a pretty huge penalty for taking it out before age 59.
Stock Market
The stock market can be very risky, or very safe, depending on how you allocate your funds. For people who are new to investing in the stock market, please do not go it alone. It is a really good idea to work with a financial adviser. That being said, much of your 401(K)’s and mutual funds are basically stock market investments. You can use a financial adviser who can invest in stocks for you, going by how much risk you want to take on, or you can do it yourself through places like E-Trade. I can’t stress enough that the stock market is no place to into without full knowledge of what you are doing, so please get yourself a financial adviser to at least guide you as a beginner through all the nuances.
Bonds
“In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds.
The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, that is, the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the secondary market.
Thus, a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or short-term commercial paper are considered to be money market instruments and not bonds: the main difference is the length of the term of the instrument.
Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in a company (that is, they are owners), whereas bondholders have a creditor stake in the company (that is, they are lenders). Being a creditor, bondholders have priority over stockholders. This means they will be repaid in advance of stockholders, but will rank behind secured creditors, in the event of bankruptcy. Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks typically remain outstanding indefinitely. An exception is an irredeemable bond, such as a consol, which is a perpetuity, that is, a bond with no maturity.” From Wikipedia
So, you see, you can pay into a bond, and at some point it matures, and you receive the principal back plus the set interest rate on the maturity date. There are small risks involved in investing in bonds, but the risk is quite a bit lower than investing in the stock market. It is still recommended that investment in bonds should be done with the help of a financial adviser.
Mutual Funds
“A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.
Mutual funds have advantages and disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, they provide liquidity, and they are managed by professional investors. On the negative side, investors in a mutual fund must pay various fees and expenses.” From Wikipedia
Mutual funds are a great way for seniors to invest. The funds are professionally managed and can be set up for long term growth, which creates a lower risk environment for your money. Also mutual funds can be established for investment in areas of person interest. One can invest in energy, alternative energy, health care, environmentally conscious companies, education or cutting edge technologies.
Life Insurance
Life insurance can get expensive for an older person, so it is not really recommending (by me, anyway) as a good investment for retirees and soon-to-be retirees. Ideally, a person should start investing in Whole Life insurance when they are young and can build equity in the account. For life insurance, it is best to check rates of return, and definitely consult with a financial adviser. On the plus side, investing in Whole Life insurance is less risky than other forms of investment, and can result in a lump sum paid out to your beneficiary.
“Generally, you can withdraw a limited amount of cash from your whole life insurance policy. In fact, a cash-value withdrawal up to your policy basis, which is the amount of premiums you’ve paid into the policy, is typically non-taxable. Any withdrawals that exceed your basis, meaning you’re dipping into gains, will be taxed at your ordinary income rate. Your death benefit will be reduced based on the amount you withdraw.
A cash withdrawal shouldn’t be taken lightly. Life is unpredictable, and removing any cash from your life insurance policy may leave you vulnerable to life’s uncertainties.” From Farm Bureau
So if you are looking to use your return on investment to live on, life insurance isn’t all that helpful.
Real Estate
Once again, if you intend to invest in real estate, this is something you should get into when you are young and have plenty of time to create equity. Also, since the housing bubble popped around 2008, I would look at real estate investment with a tentative eye. There are too many factors to keep track of, and success or failure can depend on location, weather and natural disasters, prime interest rates, and the overall economy, among other factors. Also the costs of maintaining real estate can become prohibitive. Even though you are getting a passive income (money coming in for which you don’t have to work) from rent, there are still the costs of property management, taxes, insurance, and high dollar maintenance costs like a new roof or new HVAC.
However, the home you currently own can help you with retirement funds. See my article on reverse mortgages here. Also you can sell your home and live off of the proceeds. When you sell your home, the capital gains on the sale are exempt from capital gains tax. Based on the Taxpayer Relief Act of 1997, if you are single, you will pay no capital gains tax on the first $250,000 you make when you sell your home. Married couples enjoy a $500,000 exemption. Another thing you can do is downsize. Sell your big home and use the proceeds to buy a smaller home, less costly home. You can reduce or even eliminate your mortgage payment by doing this. But be sure to factor in taxes, insurance and maintenance.
Bottom Line
No matter how you choose to save for retirement, there are a few things you should generally consider:
Have a strategy: If you don’t have a plan put down on paper, get one. It’s a lot easier to keep with an investment program, no matter how simple or complex, if you have your goals, and the steps needed to achieve them, written down.
Get a financial adviser: I can’t stress this enough. Get a professional that knows finance and investment strategies.
Know your risks and keep them in mind: Your financial adviser will know what your risks are, and can help you navigate around them and insulate your funds for whatever happens.
Diversify: You’ve heard that you shouldn’t put all your eggs in one basket. The same goes with investments. Put your money in several different investments. That way, if one investment goes down, it doesn’t take all your money with it.
Have a backup plan: You never know what life will throw at you, so be prepared in case things don’t work out how you planned. Many retirees have a full time or part-time job lined up, or plan to fall back on relatives if there are any issues with their investments.
Communicate: Talk to your spouse or partner. Talk to your relatives. Talk to your adviser. And do it on a regular basis. This way, others can help you along the way, should your investment planning go wrong. Sit down together at least quarterly and discuss your financial plans to make sure you’re still on track.
Something You Should Consider
If you have been reading my blog, you will know that my retirement plan is to work my affiliate marketing business. This will bring in income that I can use to live on, and save for the future. And you know by now that the platform I use for affiliate marketing is Wealthy Affiliate. Please read my reviews are articles below:
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Please leave your questions and comments below, and thank you for reading!
references:
https://en.wikipedia.org/wiki/401(k)
https://en.wikipedia.org/wiki/Bond_(finance)
https://en.wikipedia.org/wiki/Mutual_fund
https://money.usnews.com/money/retirement/401ks/slideshows/9-ways-to-avoid-401-k-fees-and-penalties
https://www.fbfs.com/learning-center/can-i-cash-in-a-whole-life-insurance-policy
https://www.investopedia.com/ask/answers/06/capitalgainhomesale.asp
getting a financial adviser is really the best possible move to take whenever investment is involved. I like taking risks and investing in a lot of things but then, the level of scamming has been alarming, so there’s more need to be prudent in whatever one gets at. The investment strategies you Gabe up here are spot on and really worth given a trial. I am planning on investing in both the stock market and real estate. Since in yet to be a retiree or a senior, this could be a great way to get things started for my retirements plan from now. Thanks
Hey RoDarrick! Good to see you again!. I myself have a 401(k) and I guess you could say I’m in real estate because I own my home. The problem for me is that it won’t be enough by the time I retire. That’s why I’m with Wealthy Affiliate, to hopefully gain enough so I can retire in relative comfort. And I agree, getting a trusted adviser is the best route for anyone investing in any of these strategies. You are right that fraud is rampant (see my article about senior fraud abuse here). And of course, soon-to-be retirees, there just isn’t time to build up capital. So I have to be a low risk investor. And I have a financial adviser! Thanks for reading and commenting, and I’ll see you next time! Rhonda
Thanks for the list of options here. Among the options or choices, it is investing in stocks that got me so intrigued. How can people say it is risky when you’re just buying shares of ownership in companies you like? If I buys stocks of companies that are doing well, having good products that are being bought by consumers, I am wondering where’s the risk that’s being associated with stocks investments?
Hi Gomer, thanks for reading and commenting. Even though you like a company and see that they are doing great things does not mean that they are doing well with their books. They could be in deep debt. Or just about anything can happen to their market. Like BlockBuster. They were a great stock to be invested in, but technology overran them, and they crashed in a relatively short time. Stock market investment is risky because anything can happen. Thanks for your question, and thanks again for reading my post! Rhonda
Hi Rhonda, thank you so much for bringing this valuable information. I originally want to help my parent to start their own investment, but this is also beneficial to me. I don’t really understand about the difference between bonds and stocks until I read your article here. I’m not into stock trading, but buying bonds seems a good investment plan for low risk taker like me. Thank you again.
Hello and thanks for reading and commenting on my post. I’m so happy that the information in the post will help you as well as your parents. There is so much more to investing than I realized, so watch this space, because I feel I really need to dig a little deeper into this for my readers. Thank you again for visiting my website! Rhonda
I liked your article on Affiliate Marketing For Grandparents. Thank you for writing this article. I wasn’t aware of the reason they took out taxes when you withdrew money on your 401K account. Thanks to reading your article I now understand it.
Although I have never liked the idea of the stock market, I can see that it might help some people out. If they use the right firm to start out with that is.
Your article has shown me what a mutual fond is. I’ve always wondered what they were and how they worked, but was to lazy to check them out for myself. Thanks to your article I now understand them also.
Hello Lynne, thanks for reading my post. I am glad to see that the information helped you. To tell you the truth, I didn’t know much about any of these investment strategies until I researched this article. I am not crazy about the stock market either, given the news of the last couple days, but I agree with you that working with a professional is the way to go. Thanks again for reading and commenting! Rhonda
Hello Rhonda :),
I gained a lot reading this post on the best retirement strategy for retirees, I found it helpful and my dad who is a retiree enjoyed reading also(i had to show him)
All four strategies to prepare for retirements are good even though they all have their pros and cons depending on who you ask.
I feel better with The Affiliate Marketing business model as with all other strategies there is a higher risk of losing all your money on one bad investment
You are so right about risking losing all your money, especially with the volatile nature of the stock market lately. I like that my Wealthy Affiliate website will lose me my $49 per month (less if I pay annually) and that’s if I don’t put in the work. So, I’m thinking this is going to be the best retirement strategy for me! Thank you, Ghosty, for reading and commenting on my post! Rhonda
This post will be very helpful. The honest truth is many retirees are living longer and retiring earlier, and this can only mean that a larger portion of life is spent in retirement than may have been the case for the previous generations. With longevity there comes a need to place focus even more on the aftermath of our retirements, which demands that we should start considering options like the ones you’ve noted in this post.
Thanks for this post, I should share this right away.
Regards!
Hello Jordan. thanks for your comments. You are indeed correct that we are retiring earlier and living longer. It’s ending up that we need much more money than we thought. I’m learning more every day about my own retirement, and hopefully my findings are helping others soon-to-retire like I am. Thanks again for reading and comments, and most of all, thank you for sharing! Rhonda
Wow, this is a great resource. I’ll make sure I share this with my parents, that are going to be fully retired in the next couple of years.
I think the most proactive retirement plan is to build an internet business. I love that you mentioned a business model like affiliate marketing in your last paragraph. There are just so many opportunities thanks to the internet that no one should ever settle for a less than great retirement!
Thanks for writing this article, it was a great read!
Hi Wilson, thanks for reading and commenting, and most of all, thanks for sharing this with your parents. Hey what can I say? Affiliate Marketing at Wealthy Affiliate is my fall-back position for my retirement. And with that, I’m learning every day about how retirement will work for me. Anyway, thanks again for stopping by my website! Rhonda