Investment Alternatives for Retirement

In the modern world there are lots of investment alternatives to ensure well-to-do and worthy retirement. The most popular investments are real estate; land; collectibles; taxable investments such as common stocks, bonds and mutual funds; untaxed investments, such as Individual Retirement Accounts (IRAs) and 401(k) plans; company pension and social security. The objective of the paper is to define main advantages or disadvantages of each alternative. (20 Investments) Taxable investments are really important for retirement plans. They include, for example, common stocks, mutual funds and corporate bonds.

Common stocks provide over the long term better returns, but the risk is reasonable. It is indicated that income from common stocks is about 11-12% per year. The advantages are that common stocks are very easy to buy and sell; there are many public companies issuing them; it is very easy to find reliable information on public companies. Nevertheless the risk is that the stock invested in may decline in value. Due to mutual funds it is possible to make easily monthly contributions and the money invested are managed by a professional manager. And in retirement a person will receive at least average income.

Bonds are a slightly higher yield, because their investments are connected with a certain default risk, but they offer an excellent source of income for retirees. (20 Investments) Investing in land and home (real estate and property) is not very worthy of investing for retirement, because they are seriously affected by “by the condition of the immediate area surrounding the property and other local factors”. Also a lot of factors influence such investments: age and condition of the home or land, changes to zoning regulations, improvements that have been made, etc.

one advantages of such investing is that mortgages give the opportunity to borrow against the property up to three times the value. The disadvantage is that there is a necessity to pay insurance, maintenance and property taxes. It is not a suitable method for retirees. (20 Investments) IRA (Individual Retirement Accounts) and 401K Plans are the best suited for retirement, because there are no taxes on interest, capital gains and dividends from the investments. It means that the future money will in the account working for future retiree.

If a person is under 70 and has earned income, he is eligible to make contributions. Deductible contributions may be also made. (20 Investments) Investing in gold coins, bullion, or jewelry is an interesting task, but can result in no benefits in retirement. It isn’t a risky investment, because it doesn’t depend on the inflation rates in the country. It is the main advantage of such investment. Nevertheless there are also disadvantages. For example, they do not offer any income to the investor, don’t provide any tax protection and it is difficult to determine their true value.

It is seen there are many uncertainties with collectible and it is not recommended to count on them for retirement. One more investment alternative is company pension. There are two types: money purchase and defined benefit. Money transfer to an opened personal pension before retirement ages provides additional flexibility. If the pension is linked to a salary, then a person can find that the best option is to take the benefits offered from the plan. But there are exceptions: single people are not allowed to transfer money to personal pension. (Company Pension) The last alternative to mention is Social Security.

It is known that throughout the employee’s career, the Social Security Administration records and notes all the earnings. The employee is entitled to amount of the monthly benefit, but the amount is dependent on earnings record and the age when retiree starts using benefits. (Social Security) In conclusion it is necessary to mention that the best investment alternatives are Individual Retirement Accounts and taxable investments such as bonds, common stocks and mutual funds.

References

Social Security Administration. (2006, May 10). Retrieved September, 15, from http://www.qsindependent.com/