For most, creating a retirement plan is complex and confusing. There are multiple things to consider including when to start saving for retirement; how much money is needed; and which investment practices offer the greatest return on investment.
Products included in a retirement plan range from pensions and benefit plans to self-employment plans and individual retirement accounts to financial investments. Planning for retirement also necessitates estate planning to protect assets you’ve worked your entire life to acquire.
Most people find it best to work with a financial adviser. Experts are trained to address nearly any personal finance situation and can help you create a retirement plan based on current and future goals. When selecting a financial planner it’s important to determine how they assess fees because this can affect the type of financial products offered.
Essentially, there are three fee structures used by financial planners. These include: commission-based, fee-based, and fee-only. Commission-based planners earn income by selling financial products. Fee-based planners are paid a fee for advice and also earn commission from products they sell. Fee-only planners earn income from advice and do not receive commission by selling financial products.
It isn’t always necessary to hire a financial planner, but it’s a good strategy for people that aren’t familiar with retirement planning or those that want to learn more about financial investment products.
The number one question people have about retirement planning is how much money needs to be invested? The answer depends on your age when you start investing, when you plan to retire, and the types of products you invest in.
Many people choose to deposit funds into individual retirement accounts such as Roth IRA; employer retirement accounts such as 401(k), 403(b), and Thrift Savings Plan (TSP); or regular investment accounts. Although the latter does not provide tax advantages, it also does not limit the amount of funds that can be contributed.
When it comes to investing for retirement there are three classifications of products that include: stocks, bonds, and cash. Stocks and bonds can be purchased individually or via mutual funds that include a mix of products. The key to solid retirement investing is asset allocation which involves having a good mix of cash, stocks, and bonds.
When investing in shares of stock you become part owner of the company you’re investing in. There are two ways to make money by investing in stocks. The first is to sell shares when they appreciate in value. The other is when companies pay dividends to shareholders. The fastest way to grow investment funds with stocks is to reinvest dividends instead of spending the money.
Bonds are sold as a way for companies and governments to acquire funding. In a sense, when you invest in bonds you are offering a loan to the entity. Bonds earn interest, known as its ‘coupon’ which is paid out when the bond reaches its maturity date.
Investing in U.S. Treasury bonds is one of the safest investment practices and is a good option for acquiring tax-free income. Overall, bonds should make up the bulk of retirement investment portfolios. A good goal is 70 percent bonds and 30 percent stocks.
People often postpone creating a retirement plan until later in life. A better approach is to begin investing for retirement as soon as you begin earning an income. Doing so will provide you with compounded interest that has accrued for many years and require less in annual contributions.
With that said, it’s never too late to get started. If you’re already in your 40s or 50s it’s best to consult with an estate attorney or financial planner to find out which methods offer the highest return on investment.
Engaging in strategic planning for retirement can let you enjoy your golden years with the same ease and comfort you experience now. Working with an estate attorney will also ensure assets are protected and can easily be transferred to heirs
At Craton, Switzer and Tokar, we help clients create a retirement plan that will let them reach their goals and protect their estate upon death. We encourage you to contact us to arrange a consultation or visit our estate planning blog to learn more about available strategies that let you retire comfortably.