Retirement - the word means many things to many people. For most, it signifies freedom; freedom from the constraints of having to go to work somewhere five days a week and the necessity of living your life around the 40 hours per week you need to earn income. It means you now have the ability to do what you want, when you want, whenever you want. It also means that your reliable or steady income source from your job will be gone
So, let's say you're retired now. You can travel the world, devote more time to your interests and spend more time with family. Sounds like the prefect life, no? It can be, but one thing that does not change once you've entered retirement is the need for an income. You're still going to need to live, and the fact that you are no longer required to go to work Monday through Friday is likely going to emphasize the need for a reliable income source - you'll now have an additional 40 hours of living per week that you can fill any way you please and chances are, anything you can fill that additional time with will likely require money to do so.
Planning ahead is of course the only logical course for retirement. Securing your finances should be one of three goals any retiree should be looking at. The other two objectives are keeping your income growing and avoiding unnecessary financial risks. The first thing we'll look at is securing your finances.
The more you know about investing and the potential impact that different decisions can have on your invested capital, the better off and secure your financial plans for retirement will likely be. Retirement investing can vary drastically. It is feasible to invest in stocks, bonds, precious metals (gold, silver), oil, annuities and 401K. Playing the stocks or investing in bonds, while very worthwhile, does require an extensive amount of knowledge in order to understand exactly what you're doing and where you're potentially putting your money. This is compounded by the fact that fluctuations in the market are well beyond your control - there could be no worse feeling than seeing your money dwindle or completely vanish and knowing there is absolutely nothing you can do while it happens. Investing in precious metals is definitely a strong option as precious metals are exempt from capital gains taxes and have shown a strong tendency to rise in value during times of economic uncertainty due to war, inflation, deflation and dips in the stock market. Speak to your financial planner if this sounds like an option you may be interested in.
The other strong retirement investment option is annuities.
Annuities are insurance based products. They pay out an income and are a popular option for those seeking a steady income during retirement. They are simple enough to understand, basically, you purchase and make investments in the annuity. The annuity pays out at a later date, or in some instances, a series of future dates, depending on which type of annuity you choose to invest in. The actual payouts can be monthly, annually, or a lump sum. How much the payments are will depend on whether you have chosen to go with a guaranteed payout, which is classified as a Fixed Annuity, or, you can choose a predetermined payout schedule which is determined by your annuities underlying investments, also known as a Variable Annuity.
A major strength of annuities is that they enable the bearer to save large amounts of cash and defer paying taxes. And, unlike their financial cousins, the 401K and IRA's, they have no cap or limit as to how much you may contribute yearly. All the money that you contribute is compounded without any yearly taxes. As mentioned above, you can opt to have all of the money you've invested paid out at once, or you can set up a schedule that will spread the payouts over time. Spreading the payouts over time is a popular choice as it can be structured to maintain cash flow exactly the same way you did when you were drawing a salary and paycheck - you could segue way into retirement and never skip a beat cash-wise, essentially.
Increasing life expectancies have also bolstered the case for choosing annuities as a part of your financial retirement planning, since the rate of return on an annuity payout will improve as the annuity holder's age increases.
Future articles will delve into how to avoid risks and options for growing your retirement income.