Investment Decisions to Make Now to Set Yourself Up for a Successful Retirement

Regardless of your age, you should be thinking about your plans for retirement. While the typical retirement age in America is 65, the average life expectancy for those who reach 65 is 85, meaning you could have 20 years to enjoy your retirement. 

Your Social Security benefits will only cover a portion of your pre-retirement income needs, so it's crucial to start investment planning in Cedar Park, TX, now so that you can be financially stable when you retire.

However, many people struggle to lay out an investment plan due to the overwhelming options and pathways available to them. To help you get started, this article will cover a few smart investment choices to consider to set you up for a successful and financially stable retirement. 

How Does Investing for Retirement Work?

Planning for retirement is a long-term investment. You must think years or decades into the future to create a plan that helps you achieve your financial goals. 

Investing for retirement means taking some of the money you make now and saving or investing it to create a financial cushion for your retirement years. You can accomplish this in many ways. For example, you can invest in:

• Bonds
• Stocks
• Real estate
• Mutual funds
• Exchange Traded Funds (ETFs)

You can also deposit funds into retirement account options, such as IRAs or 401(k)s, and select the investments you'd like to make. Your investments will yield interest, dividends or capital gains which you can reinvest to grow your retirement fund.

Regardless of your investment vehicle, the goal is to save or invest enough money to give yourself a comfortable income when you retire. The term "comfortable" here varies with every person, so your financial goals should impact your investment choices. 

Starting early means having a more significant financial cushion when you retire, so it's time to start thinking about your different investment options, how to increase portfolio diversification, and how to take advantage of compound interest.

Explore Your Options for Retirement Accounts

In order to make smart investment moves, you need to understand your options for investment planning in Cedar Park, TX.. Let's start with the different kinds of retirement accounts and ways to access money during your golden years.

Social Security

You may be eligible for Social Security benefits if you pay into the program during your working years. This means that the benefits you receive during your retirement depend on your past income and the age you claim your Social Security benefits.

For example, if you earned less than $100,000 a year while working, your Social Security benefits would replace around 40% of your pre-retirement income. However, if you earned more than $100,000 annually, then it would only replace 33%.

Claiming these benefits means receiving a monthly check from the government-provided program.

Traditional IRA

You can set up a traditional IRA (Individual Retirement Account) independently. You make contributions to this account during your working years and may be able to deduct the contributions turning them into pre-tax dollars.. As such, your IRA investment can grow until you retire, then you will pay taxes whenever you make any withdrawals from this account. 

Roth IRA

As you'll learn while exploring investment opportunities, you can invest in multiple types of IRA accounts. The main difference between a Roth and a Traditional IRA is that you do not deduct your contribution and keep it post-tax. Because of this you can make qualified withdrawals without paying taxes, and your investment grows tax-free.

Employer Sponsored Retirement Plans

If you work for a company with 100 employees or fewer, you may be able to contribute to a Savings Incentive Match Plan for Employees or SIMPLE IRA. Essentially, both you and your employers can make contributions to this account. 

Like a traditional IRA, SIMPLE IRA contributions are before- tax, but your retirement withdrawals are taxable.

Generating Investment Income Post-Retirement

Investing in retirement and tax-advantaged accounts can help you prepare for retirement, but you can also make investments that generate income well after you retire.

Mutual Funds and Exchange Traded Funds

The aim of any mutual fund or exchange-traded fund (ETF) is to generate growth. Mutual funds can help you reduce risk by creating a more diversified portfolio.

Stocks That Pay Dividends

If you invest in stocks that pay dividends, you'll receive income from the company whose stocks you invested in. Dividends are the money that companies pay shareholders, whether monthly or quarterly.

Annuities

Purchasing an annuity now or sometime during your employment years means getting income when you retire. These insurance contracts require the provider to give you regular payments for a set amount of time. You can purchase an annuity with multiple payments or a lump sum.

Creating Your Retirement Investment Plan: Factors to Consider

With so many options to consider for your financial future, it can seem overwhelming. To create a plan or at least start thinking about one, you need to consider the following factors.

Your Goals for Retirement

Before making any sort of plan, you need to determine what your goals are. When planning for retirement, ask yourself these questions:

• What is the lifestyle I want when I retire?
• How much money do I need to achieve that lifestyle and have a comfortable retirement?

Aiming for a specific dollar amount makes it easier to determine which investment pathways will help you best achieve your retirement goals.

Your Risk Tolerance

How much you can withstand various market fluctuations is your risk tolerance. In simpler terms, the sooner you start (i.e., the younger you are), the greater risk tolerance you have. 

Potential Fees

Fees are always an important aspect of financial planning. Look for custodians that offer low or no cost account fees and be aware of the expense ratios of the investments you select.

A Quick Review of Investment Planning for Retirement

Whether you're well into your professional years or are just starting out, it's the perfect time to start investment planning in Cedar Park, TX. The goal of your retirement investment plan should be to achieve a comfortable and financially secure retirement. By taking action now, you can set yourself up for a successful future.