We live in a world that too often ignores financial education, and even financial planning. When you got your first job, did you have 401(k) options to choose from? Did you have any idea what you were looking at? If you don’t have a 401(k) or don’t understand how it works, there is no reason to get into a panic.
Unfortunately, our shortage of substantial financial information creates a lack of understanding of retirement investment strategies. One could imagine meeting a friend at a dinner party and have them gasp when they hear that you don’t have a 401(k), “but how do you ever expect to retire on time?”
Don’t let that friend throw you off. The truth is, they are as probably as clueless as anyone. There are many forms of intelligent retirement investment strategies. The only question is which strategy is best for you.
Dispelling the myth of “common sense” finance
Since we so often ignore financial education, it’s easy to think it’s not necessary. Some people think retirement savings will take care of itself. Others know how important it is, but just don’t know where to begin.
To an extent, this was true when the bulk of retirement savings were dependent on earning a pension. Now, pensions are closer to a fairy tale and the 401(k)s that are left to fill their role come up far too short.
This is not to say that a 401(k) is a poor investment vehicle, it just might not be the best one for you. Furthermore, depending solely on one retirement investment vehicle is rarely a good decision.
Knowing multiple retirement investment strategies will help you determine the ones that will work best for your life
The important thing to know is that there is so much more to know. We can only crack the surface here but, by reading this far, you’ve proven you’re ready to begin understanding the wider world of retirement investment strategies. That is a good thing for you and your future.
The Traditional 401(k)
Why not start with what we’ve heard of? Self-employed people can open what is called a Solo 401(k) that comes with its own unique set of benefits. For our purposes here we’ll focus on the traditional 401(k).
One of the biggest pitfalls with this vehicle is that investment options are limited. Limiting your investment options is, well, not great. Add this to the account fees and you might second guess whether this is the right way to go.
Account fees often sound insignificant because they are single-digit percent charges. This is deceiving. That small percentage can add up to tens or hundreds of thousands of dollars over the course of a career.
The plus side of the 401(k) is a strong one. With those fees comes professional management. If you have no intention of trying to understand investments, professional management is essential. If you won’t bother with it, it is best you pay someone who will.
The next advantage is the company match. Many companies will offer to match up to a percentage of the money you contribute to your 401(k). This is essentially a raise and basically free money. Taking advantage is wise.
Individual Retirement Account (IRA) and Roth IRA
IRAs are similar in function to a 401(k) except that you can open one independent of a company. They are an extremely valuable investment vehicle in conjunction with a 401(k) to diversify your retirement investment strategies.
An IRA and a Roth IRA differ in the way they are taxed. An IRA defers taxes until the money is withdrawn while a Roth IRA is funded with money that has already been taxed, so all withdrawals are non-taxable. Both funding strategies have their advantages and just as it is important to diversify investments, it is also important to diversify how they are taxed.
Real Estate Investing
The world of real estate investing has many routes of its own for retirement investment strategies. Wholesaling, rehabbing, and rental properties are the primary strategies implemented.
You could also get involved by investing in Real Estate Investment Trusts (REITs). Still, any form of real estate investing comes with its own form of risks. It is essential to educate yourself on any option you choose.
Real estate is responsible for creating many of the world’s wealthiest people, so you have a chance to pad retirement savings with smart moves. Just don’t fool yourself into thinking this is a low-risk strategy. Poor execution can be expensive.
Each of these strategies will work best when you understand how they operate. All investment strategies exist for a reason. Understanding how they work gives them the best chance to work for you.
What retirement investing strategies do you take advantage of?