Planning for your retirement is extremely important. Regardless of your income, you should always invest a small amount of it towards a retirement plan. It’s easy to get lost in the grit and grind of the present and forget about the future, however, you must try your best to keep your retirement days in mind and plan ahead.
Here are the best tools and methods to help you start investing for retirement:
Retirement Income Funds
Retirement income funds are great for passive investors. They are a type of mutual fund that automatically invests your money in a diversified portfolio of stocks and bonds. Retirement income funds aim to generate monthly income. Most people have at least a small amount of experience with mutual funds, and so they feel comfortable with retirement income funds. Like mutual funds, retirement income funds are set up in a way that makes them accessible at all times. However, mutual funds tend to involve high fees. If you want to avoid paying that fee, you can put your money in diversified portfolios, which are invested in cheaper Exchange-Traded Funds, which will enable you to save more money in the long term.
The Wealthface Retirement Passive Investment portfolio provides the benefit of low fees, and portfolio diversification through different asset classes, by following index ETFs that generate higher returns than active investing portfolios in the long run.
Immediate annuities provide guaranteed income immediately. They are another great tool to help you with your retirement investing strategy.
They are a sort of insurance instead of an investment. However, they do provide consistent income and deserve a place on this list for that reason. A 10-year term-certain annuity, for example, buys a stream of income for 10 years. Because immediate annuities start paying out directly, they appeal to people who are close to retirement or already are retired. Immediate annuities are definitely not for everyone. They can clog up your assets, and you’ll “lose” money if you die before fully “cashing out.” Immediate annuities could also be advantageous if you have trouble staying within your spending limits/cannot stick with an investment plan/or don’t have any monthly sources of income besides Social Security.
Immediate annuities do tend to carry more restrictions than the retirement plans offered by Wealthface. Our retirement plans allow you to withdraw your money in the case of an emergency and re-deposit it in the future without any additional charges.
Rental Real Estate
Renting out property for income requires a hands-on approach, and in many cases, more work than you might have anticipated for your golden years. Research and extensive preparatory planning are key for successfully including them in your retirement investing strategy. Before you take a plunge into the field of rental real estate and decide to become a landlord in retirement, consider the rental property expenses you may incur over the time-frame you plan to own the property. These include things like maintenance, damage caused by negligent renters, natural disasters, etc. You must also consider vacancy rates as it’s tough for any property to be rented out continuously. If you already possess an extensive real estate background or are willing to spend some time learning the tricks of the trade, real estate is a fantastic source of continuous income.
You don’t need to actually buy a house or a piece of land to invest in real estate. Wealthface offers a large variety of portfolios which are diversified across different sectors, including real estate. Investing in real estate through a Wealthface portfolio will give you the option to withdraw your money at any time that you have the need for liquid cash. It also prevents you from parking all your money in a single asset class,
Real Estate Investment Trusts (REITs)
A REIT (Real Estate Investment Trust) is a mutual fund that aggregates real estate holdings (apartment buildings, commercial structures, vacation properties, etc.). For a fee, professionals manage the properties, collect rent, pay expenses, and you receive the remaining income. As part of a diversified portfolio, REITs can be a good retirement investment choice.
Dividend Income Funds
A dividend income fund, like other funds, may be a collection of stocks overseen by a fund manager. The dividends you receive come from the dividends that are paid out by the underlying stocks within the fund. Dividends can be extremely unpredictable at times. They can rise one year and fall massively the next. Some publicly traded companies generate qualified dividends, which are taxed at a lower rate than other sources of income. If you are looking to include dividend income funds in your retirement strategy, be wary of funds that advertise high yields. While higher-than-normal yields are definitely possible to attain, they usually come with much higher risk than other funds.
When you invest in a Wealthface portfolio, the dividends you are are pre-invested in your portfolio every year. This helps you grow your money in a compounded manner, helping you reach your retirement investment goals faster.
When done right, a total return portfolio is one of the best retirement investments out there. It is not a stand-alone investment. The Total Return retirement investment portfolio is a strategy that uses a balanced and diverse blend of stock and bond index funds that provide retirement income in the form of interest, dividends, and capital gains. The portfolio is designed to achieve a considerable long-term rate of return, and along the way, you follow a prescribed set of withdrawal rate rules that will typically allow you to take out 4-7 percent a year. During certain years, your withdrawal limit can be increased in order to adjust for inflation. In case you are wondering what “total return” means, don’t worry, we have got the explanation for you.
Consider this. Unlike a Certificate of Deposit, that has a specific interest rate, a total return portfolio doesn’t have a fixed return rate for every year. Some years your investment returns could be as high as 14%, and during some down years could be as bad as negative 10%. However, over a 10-year span, a specific mix of investments (such as 60% stock index funds and 40% bonds) has a high probability of earning as much as 6-7% average rate of return (a conservative estimate). So if you are going to use total return portfolios for your retirement investment strategy, remember that you will be targeting average return, rather than knowing the exact outcome each year.
Wealthface has designed and built a portfolio based on Nobel Prize-winning research. It has been successfully back-tested to cover 13 years of data, including the global financial crisis of 2008. The Wealthface team have made sure to develop strategies that protect clients’ deposits by minimizing their risk and optimizing portfolios for maximum returns.
Investing for retirement: Conclusion
If you feel that this brief introduction to retirement investing strategies and retirement plans is a lot to take in, don’t worry, you can always check out our other posts on related subjects such as how to build wealth and secure your future. Here’s to a happy retired life ahead. Cheers!
If you have questions about any of the details in this article, or about Wealthface’s products, feel free to contact us and speak to one of our financial experts, who will provide a free consultation of the best way you can reach your retirement objectives.