Tips for retirement investment planning

Retirement investment is more than just stashing away money, and it requires proper planning to ensure a financially secure future in your golden years. You can begin investing early and start with some basic rules to help you save more.

  • Practice financial discipline Try to cut back on impulse purchases and start saving more. Pay off your debts systematically and on-time, and always prioritize clearing high-interest debts quickly. These include your credit card dues and high-interest short-term loans. More of your monthly budget should go toward these after meeting your essential needs like grocery, utility bills, and home maintenance.
  • Don’t spend freed-up funds If you finish repaying a loan, the loan dues will be extra money on your hands. You have already grown used to not having it, so save it in your retirement investment account, or use it to create a new short- or long-term investment. Your short-term investments can help fund some high-ticket purchases, which is better than using a credit card. Also, put aside some savings in an emergency fund for unexpected needs.
  • Retirement investment accounts Begin your retirement investment, either in an IRA or in a 401(k) plan. It is never too late to start saving, but it is better to begin while young. This way, you can make smaller investments and still create a large fund for your golden years. If you can afford it, invest in more than one retirement investment account as each has its own annual limits.
  • Asset allocation The three asset classes are equities, fixed income securities, and cash. Experts advise you to keep the least amount of your savings in cash, as depreciation can eat into their actual future value. When investing, you are advised to move from high-risk-high-growth investments to more secure options as you get older. When young, you have more years of steady income to look forward to, and you can afford to take more risk, which means you can invest in more equities in your twenties and early thirties. They involve high risk, but they also provide the best potential for your funds to grow, helping to beat inflation. Later, as your approach your forties, you can gradually start putting more of your money in fixed-income securities and less in stocks. When you are actually approaching your retirement age, most of your investments should be in fixed income instruments and very little should be in stocks. Your cash savings should be adequate enough to meet some emergency needs.

A few retirement investment options

  • Annuities: These are a series of regular deposits or a lump sum deposit. In return, the insurance company agrees to make a regular payment either beginning immediately or at an agreed future date.
  • Stocks: You can directly invest in a variety of stocks if you have enough knowledge to pick the right ones.
  • Bonds: When you buy a bond, you are actually providing a loan to the issuer of the bond. The bond issuer can be a government or a corporation. On maturity, your entire capital is repaid, along with any interest that you have not taken out.
  • Mutual funds: Mutual funds are managed by financial experts who pick the equities, bonds, and other investments. The shares and bonds go into a common pool, and all the income is distributed among the mutual fund investors in proportion to their investment.
  • Exchange Traded Funds (ETFs): More people are moving away from a fully-managed mutual fund to ETFs, which need minimal management. ETFs track the movement of all the stocks in an index, like the Nasdaq-100.

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