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Investing for the long run requires a balance between conservatism and risk. Understandably, after the 2008 market crash, many investors have leaned towards taking as few risks as possible with their portfolio. However, it’s risky being too conservative—because your money won’t grow fast enough for you to have a comfortable retirement. And, of course, you don’t want to be too daring with your investments, either, risking your hard-earned money on speculative ventures that didn’t turn out as expected.
One approach to ensure that you strike the right balance between conservatism and risk is to protect your income-generating assets against inflation, defer your taxes so that your income has enough time to benefit from compound interest, and ensure a steady cash flow during your retirement years.
Here are some ideas on how to achieve these three objectives:
- Protect your income-creating assets against inflation:
Few financial advisers dispute the idea that when investing for retirement, you need income-generating assets, like municipal bonds or dividend-paying stocks. However, by also adding gold coins to your holdings, you’re not only diversifying your investments but also protecting your income against the ravages of inflation. So, think of gold as similar to your homeowner’s insurance policy. Although you may never need to make a claim, you have protection should something unexpected happen, like a kitchen fire spreading and burning your whole house down. When it comes to gold coins, many collectors favor the Gold American Eagle because it contains a full troy ounce of gold.
- Defer taxes to benefit from compound interest.
When investing, it’s easy to be preoccupied with your choice of investments; however, you should also keep in mind that you will benefit immensely by having an investment retirement account. In fact, in the long run, having the right account may be more important than simply picking the best investments because individual retirement accounts IRAs and 401(k) plans are tax favorable plans, which means that your tax-deferred earnings can benefit from the miracle of compound interest. So, say “yes” when your employer offers you a plan that the company will match with a percentage of your contributions.
- Ensure a steady cash flow during your retirement years:
Perhaps one of the best ways to ensure a reliable monthly income when you retire is through acquiring annuities. However, it’s a mistake to think of an annuity as an investment, because it’s closer to a type of insurance. The purpose of an annuity is to generate a steady stream of income when you retire.
You have a choice of two types of annuities: a deferred annuity or an immediate annuity. With a deferred annuity, you pay regularly scheduled premiums. At a specified time the underwriter begins sending you money instead. It may be a lifetime policy, meaning your payouts continue for the remainder of your life regardless of how long that might be, or one where you receive the payouts over the course of a predetermined number of years. With an immediate annuity, there’s no accumulation period. After the insurance company receives your lump-sum premium, your income will not take longer than a year to start.
Ron Grensteiner explains how to determine which one is right for you. Deferred variable annuities, he says, are “…good for those looking for a future retirement income stream. He suggests, “It’s more appropriate for younger people (age 40+) and older people (age 60+), who have higher income or assets.” Meanwhile, he believes that immediate annuities “…are especially good for people looking for the highest guaranteed income for life potential, but understand that they will not have access to the principal amount. They are also good for people who need to start taking income immediately.”
Talk to an Experienced Adviser
Since investing for retirement requires considerable thought, you should work with a certified retirement counselor when planning your retirement life. This step will definitely be useful if you’re unfamiliar with the many nuances of investment planning. However, it’s helpful even if you’re a seasoned investor because you’ll have somebody to give you feedback on the scope, feasibility, and viability of your plans.
***Photo courtesy of https://www.flickr.com/photos/9731367@N02/7157264063/in/
