Retirement is an exciting time full of new opportunities and hard-earned rewards, but you have to manage it properly. To be effective, planning for retirement needs to start many years before you stop work. The earlier you begin, the more likely you are to meet your long-term financial goals. There are many retirement structures and schemes available, with people needing to choose the right way forward based on their individual financial situation and tolerance for risk.
Setting Retirement Goals
To ensure financial health during retirement, it’s normally a good idea to start simple and work backwards. You should determine how much money you need during retirement and put various systems in place to help your funds accumulate. During this phase, it’s important to consider your age, current wealth, and lifestyle demands. When you understand how much time you have to save for retirement, you can consider different investment strategies.
When setting long-term financial goals, it’s important to think about risk tolerance. With every investment, there is a defined relationship between potential rewards, time horizons, and monetary risk. In the vast majority of situations, you can increase financial rewards in one of two ways: investing for longer periods or taking more risks. While this relationship changes dramatically between investments, this simple choice is central to every retirement plan.
Common Retirement Structures
Investing for retirement is not a one-size-fits-all scenario. There are lots of ways to move forward, from property and business investments to IRAs, 401(k)s, and annuities. Let’s look at dedicated retirement plans, including their pros and cons.
IRAs
An individual retirement account (IRA) is a vehicle for holding financial assets before and during retirement. These assets can take many forms, from stocks to bonds to mutual funds. An IRA is an individual investment and savings account that holds retirement funds and provides tax benefits. This plan provides greater control, access to more assets, and better tax advantages than a 401(k), although the maximum contribution is relatively low.
401(k)s
401(k)s are similar in many ways to IRAs. However, while both plans are designed to provide income during retirement, they are administered under different rules. A 401(k) is an employer-sponsored retirement account, and an IRA is an individual-funded retirement account. This employer-based plan allows you to boost your retirement savings more than an IRA, but you’ll owe income tax on all contributions and gains.
Annuities
In contrast to IRAs, which hold specific assets, annuities are a specific asset. Annuities are a type of insurance product that’s been designed to generate income. Annuities offer tax benefits and provide a regular source of monthly, quarterly, annual, or lump-sum income. Annuities provide a guaranteed source of regular income for greater security during retirement at the cost of higher fees and reduced customization.
The Importance of Diversification
Regardless of which retirement plan you choose, the importance of diversification cannot be overstated. In a best-case scenario, you should combine one of the dedicated retirement plans listed above with other investments like real estate, businesses, and shares. Diversifying your investment portfolio is essential to minimize risk and maximize returns over a long-term period.
The Importance of Regular Review
Whether you’re nearing the age of retirement or making proactive moves earlier in life, it’s important to set goals and take action to ensure sustainable financial health. Making the right moves is not enough in isolation; however, you need to review your plan regularly and make adjustments when needed. If you don’t have enough confidence to review the complex and always-changing financial landscape, it’s important to work with an experienced financial consultant.
If you need advise on financial decisions for your retirement, we are here to help. Delta Capital Management offers a trusted retirement planning service in Maitland and across Florida. If you’re looking for expert advice and sophisticated retirement planning, please contact Sean Casterline for more information.
