retirement fund

What’s the Best Way to Invest Your Retirement Fund?

A staggering half of all Americans have no money put aside for their future departure from the job field.

With social security payments averaging less than $1,200 a month, this means that many Americans will struggle to get by when they do choose to retire.

Even if you have begun to save for retirement, if you’ve started late or can’t put aside enough, you may still struggle.

Luckily, there are plenty of smart ways to invest your retirement fund to help it grow and provide for you after retirement. Keep reading to learn about a few of the best investment options to help you choose the right one for you.

Open a 401K or IRA Retirement Fund

If you want to start investing in your future retirement but are afraid of risking your money, a 401k or an IRA is your best option.

A 401k is a retirement fund offered through an employer. The specifics of a 401k vary depending on your employer, how long you stay in that position, how much you choose to contribute, and other factors.

Your employer may contribute to this account or match your contributions. You can often choose to have a set amount taken from each paycheck and added to your account, which can help you grow your fund steadily over time.

An IRA is an account that is set up by a financial provider rather than an employer. These are beneficial because they allow you to put away money that is tax-free or tax-deferred.

There are three main types of IRAs.

A traditional IRA allows you to deduct money that you contribute from your tax return, and you can defer the tax on that money until retirement if you choose.

A ROTH IRA allows you to contribute money that you’ve already paid taxes on so that you can withdraw it tax-free in retirement. A rollover IRA is one that is opened with funds moved from a 401k or other retirement account.

While neither provides the same opportunity for growth that investing does, you won’t have to worry about losing your money or depleting it. As long as you continue to add to these accounts, your retirement fund will continue to grow.

Start a Total Return Portfolio

While a 401k and IRA are great for building a solid financial future, you can also utilize other retirement savings options to help you generate an even larger amount of income.

One great option is a Total Return Portfolio. This type of portfolio is specifically designed for long-term investments, where you won’t need to access your money for at least 10 to 20 years.

This portfolio will include a range of stocks and bonds that is diversified to help increase your chances of earning a sizeable profit.

Retirement Income Funds

If you don’t want to build your own investment portfolio, another great option are retirement income funds.

A retirement income fund is a type of mutual fund. The money that you put into your fund is automatically dispersed across a diverse portfolio made up of stocks and bonds.

These types of funds are designed to generate an income during your retirement. Unlike bonds, you are able to access your money from your fund at any time.

Buy Bonds

Smart investments in a Total Return Portfolio can mean large gains by the time you’re ready to cash out.

But if investing in stocks and the risk it carries makes you nervous, there are other investment options that still allow you to see growth, but without the risk.

Bonds are one such option.

When you buy a bond, you are lending a set amount of money to the government. You’ll receive a set amount of interest earned on that money, but you’ll also have to wait a pre-determined period of time to withdraw that money. Bonds vary greatly in interest rates, costs, and terms.

Bonds are also available from some corporations and municipalities. While bonds are great for keeping your money secure and earning you a set return, the interest is often small, so you can’t expect to drastically grow your retirement fund through purchasing them.

Invest in Real Estate

Another way to start a retirement fund is by investing in something that will generate an income now, that you can then put into savings for the future.

Real estate investment is one great option. You can buy homes, condos, apartments, or another real estate option, and then rent it to generate a largely passive income.

Like other investment options, real estate does carry a lot of risk. If the property needs work to get it ready, or if you don’t already have the funds saved to buy out-right, it could be a long time before you start earning any income.

Additionally, even after you’ve paid off a property, you’ll still need to pay for upkeep, maintenance, and taxes.

But if you’re willing to put in the work and make smart decisions on where you buy and how you manage your properties, rental real estate can be a great way to generate income now that you can put into savings.

If you don’t mind continuing to manage your properties, they can even continue providing income during your retirement.

Immediate Annuities

Another low-risk option for your retirement fund is to purchase annuities.

Annuities are financial products purchased from insurance companies. You purchase the annuities for a set price and then earn interest each year after.

When you buy your annuities, you set up a timetable for future withdrawals. You’ll then receive payments during retirement based on that timetable.

With an annuity, you won’t have to pay taxes on the money that you’ve set aside. Once you start receiving payments, you’ll only have to pay taxes on each payment, rather than on the lump sum of your annuity.

Because your access to the funds generated by your annuities is limited to the timetable, this is a good option for anyone who worries that they may overspend during retirement.

Choosing the Best Way to Invest Your Retirement Fund

Which option for investing your retirement fund is right for you depends on your own personal preferences, as well as how much you have to invest when you plan to retire, and what your financial goals are.

If you’re willing to take the risk and have the funds to get started, stock investing can be a great way to grow your money and generate a sizeable fund for retirement.

If you’re new to investing, check out this article to learn what you need to know to get started.