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Amazing Investment Options for People Who Will Retire Soon

Personal_Finance / Pensions & Retirement Mar 28, 2021 - 11:58 AM GMT

By: Steve_Barker

Personal_Finance

Retirement planning is often overlooked. Sometimes, people get so confused and unsure of the options for retirement saving, they forget to invest anything at all. This leaves people scared or panicked in the years leading up to retirement. Does this sound like you? Whether you’ve already saved a little or a lot, it’s never too late to look at your retirement plans and start, change, or top up some investments.


This has all been compounded by the fact that advice changes constantly regarding investments, life expectancy keeps increasing, and the cost of living is through the roof. Fear not, we’re here to discuss retirement investment options for you. Read on to find out the best ways to invest your money in the years leading up to your retirement.

How Much Do You Need?

The advice here is constantly changing. The ballpark figure often thrown about for a couple retiring was always $1million but has since been changed upwards to $2million. Why? Well, medical expenses increase as life expectancy grows, the cost of housing and bills increases, along everything else inflating.

This can sound like a huge amount of money and instill panic in a soon-to-be retiree. You may not be able to save a million dollars in a few short years, but there are in fact some ways to save a lot in a short amount of time.

Roth IRAs

You’ve probably heard of IRA savings accounts. Roth IRAs are similar, but with a few tweaks. Firstly, your contributions to Roth IRAs are made with post-tax dollars. This means that everything you put in, you will get back, plus interest. There will be no nasty surprises when you try to withdraw your cash and have to pay a huge tax bill.

Secondly, a Roth IRA allows for higher contributions: $7,000 per year, if you are over 50. Roth IRAs tend to return between 7-10% interest every year. This means each year you earn that amount of interest on your $7000 deposit plus everything you’ve deposited before. The beauty of compound interest!
Just think, if you and your spouse both put $7,000 per year into a Roth IRA from the age of 50 to 65, you’d each have roughly $180,000, that’s after investing only $105,000. If you haven’t already, make sure you open a Roth IRA account as soon as possible!

401(k)s

You should take the option to open a 401(k) if your company offers one. With a 401(k), your company will also contribute to your retirement. In many cases, they will match your contributions, often up to a set limit each year. This means that if you invest $10,000 per year into your 401(k), your company will top you up with a further 10k.

There are pre and post-taxation options for 401(k)s as well. A traditional 401(k) is taken from your pay before tax, which saves you a bit of tax money in the short term. A Roth 401(k) is where you contribute to it yourself post-tax. This means you may be hit with higher taxation now, whilst paying no tax on withdrawals in your retirement. Both have their benefits, depending on your tax bracket. Talk to a financial planner for tips on which may suit you better.

ETFs

If you want to invest a little money elsewhere yourself, stocks and shares can be a great way of doing so. One of the most reliable ways to invest is into ETFs (exchange-traded funds). ETFs are a collection of stocks, bonds, currencies, and/or commodities, often bundled together to mimic some of the top index funds. The great thing about ETFs is that you don’t need to choose individual stocks and shares, but instead the ETF has a collection of 10, 50, or even 500 shares and bonds chosen for you.
They often outperform individual, more risky investment options, sometimes returning as much as 8-10% per year. If you’ve maxed out your Roth IRA contributions, ETFs can be a great way of managing another side pot of shares. 

High-Yield Savings Account

One final option is a high-yield savings account. These return as little as 1% per year on investment, so may not even match up to inflation. However, if you have a huge amount of money in riskier investments such as ETFs, shares, or even currencies, you may want to place a chunk of profit into a high-yield account like this. They are safer, hence the lower reward, but can play their part in a retirement strategy.

These top accounts and trading options are perfect for the last 10-15 years before retirement. However much you earn, throw as much of it as you can into your Roth IRA, 401(k), and/or ETFs. Even if you’re only saving for 5 years, that 8% compound interest will look great when you hit retirement.

By Steve Barker

© 2021 Copyright Steve Barker - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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