Planning for Your Dream Retirement

Whether you plan to retire to a tropical island, travel abroad, or simply enjoy life at home, everyone dreams of a perfect retirement. So what’s the best way to reach your retirement goals? Start saving for your retirement as soon as possible.

There are many different ways of saving for your retirement from a simple savings account to investing, but what worked for your co-worker, neighbor, or friends may not be ideal for you. Make sure you take the time to research all your options to find your best fit.

PENSION FUNDS
Pension funds are not being offered as readily as before, so if you are lucky enough to have a pension fund through your employer, jump aboard and take advantage. There are two different types of pension funds that most employers choose from: defined contribution funds and defined benefit plans.

A defined contribution fund means that for every hour you work, your employer pays a certain percentage of what you pay towards your pension. The employer invests your money, along with contributions from your fellow employees. Upon retirement, you receive payments from the balance of the fund. The main drawback? If the company did not invest wisely, it affects the balance that you get your retirement payments from.

A defined benefit plan is set up for you to pay a certain amount towards your pension, which is deducted from your paycheck, and the funds are then invested by your employer. The biggest advantage of this plan is that the employer has to pay you the agreed upon amount when you retire, regardless of how the investment performs.

401K FUNDS
A 401K fund is another way of saving for a retirement. 401K plans are typically offered through your employer. You decide the amount you would like to contribute, and the funds are deducted through your paycheck. Most employers will either match your contribution or pay a certain percentage of what you pay.

IRAs
An IRA itself is not actually an investment. An IRA is the account that holds the funds you will use for investing. However, the type of IRA account you choose plays an important role in your retirement. The most popular IRA accounts are a Traditional IRA and a Roth IRA.

The funds that you deposit into your Traditional IRA account will be deposited before taxes are taken out. Tax is not assessed until you withdraw the funds.

Roth IRA funds are deposited after taxes have been taken out. Therefore, when you withdraw the funds, no tax is assessed. By taking the tax out right away, you have the advantage of not paying tax on the interest your account earns.

Once you’ve determined the best IRA for your situation, the next step is to invest your funds. You can choose from stocks, bonds, mutual funds, and even treasury bills.

A stock is when you purchase a part of the company. When the company succeeds, investors are willing to pay more to purchase your stock. Unfortunately, the opposite is also true. If the company’s profits decline, investors are not looking to pay top dollar for your stock. However, scary as it may sound, studies have shown that the average annual return is almost a 10% profit. Invest in several different stocks to minimize your risk.

Bonds are thought to be a safer option. A bond works like an IOU. You invest funds into the company, with a predetermined maturity date and interest rate. The interest rate is normally paid out bi-annually, although some will pay out quarterly or monthly.

Mutual Funds are a combination of stocks and bonds, most likely purchased by a broker, and shared between several investors.

Saving towards your retirement does not have to be a stressful situation. When you understand all your options, you are better able to make smart choices. And remember, the sooner you start planning for your retirement, the better off you’ll be when your retirement years arrive.