Deciding on the best retirement investments is crucial.
After all, it is your support system in old age.
The smallest mistakes can sometimes derail the entire return perspective.
Thankfully, you now have a plethora of great retirement options.
But the point is investing in just one product won’t help.
You would have to work towards creating a comprehensive basket of investment.
This will ensure that the risk is well distributed.
The other advantage is you will have a continuous flow of income.
So it needs to be a balanced and safe investment basket without compromising returns.
- Old Age Pension
- Retirement Income Fund
- Roth IRA
- SEP IRAs
- Guaranteed Income Annuities
- Invest in Bonds
- Real Estate Investments
- Invest in Gold
- Dividend Funds
1. Old Age Pension
This is one of the most conventional but still among the best retirement investments.
You need to worry very little about it.
But at the same time, it keeps working for you continuously.
Your employer contributes on your behalf.
A part of your salary is automatically transferred without hassle.
Most importantly these funds are managed professionally.
So overall, the return profile remains reasonably sound.
The only precondition is that you need to continue with a particular job for a while.
You are eligible for the pension once you have completed a stipulated number of years.
Mostly Government employees are eligible for the pension.
It isn’t as popular in corporate circles though.
Another problem with pensions is that you get a static amount.
It does not change with age or inflation rate most times.
Moreover, post-Lehman crisis, the bank interest rates are also not as favorable.
This means that your income might not increase at par with medical expenses.
It is only natural that your medical needs might rise with age.
This is exactly why you would need to supplement this income with other investments.
You have to make sure that you do not let your spending power diminish in any way.
2. Retirement Income Fund
This is a rather sophisticated kind of mutual fund.
It is created taking the customer’s needs in mind.
The benefit of this type of fund is there is an auto allocation of your money.
The fund allocates your money across investment opportunities.
This is aimed at creating a diversified portfolio.
These include a variety of asset classes including stocks and bonds.
These also allocate money to select mutual funds.
The goal of this kind of fund is generating a pre-decided amount of monthly income.
The investments are also selected on the basis of this factor.
The whole idea is creating a channel of steady monthly income for the customer.
The biggest advantage of this fund is you can access this fund anytime.
You have complete control of the principal.
Depending on the need, you can even withdraw some amount of the principal.
However, that means that the subsequent interest amount would reduce going forward.
But many times, it is a rather simple and uncomplicated plan.
Investors find it simple to follow and invest in.
The associated offer documents also are relatively easy to decipher.
3. Investing in 401K
This is perhaps one of the most popular and among the best retirement investments.
These plans are also referred to as defined contribution plans.
Apart from the 401k, you also have the 403b.
The investors have complete transparency.
They can choose to invest in it if they want, select the plan that suits their interest best, and, they can even decide to change the investment plan or amount at a later date.
As a result, this plan allows a lot of flexibility in the overall investment plan.
If you ask financial experts, many call this as the best retirement investments.
Most employers offer an exact match in terms of contribution.
So as an investor, I get a 100% return right from the word go.
It significantly cuts down on associated paperwork in this investment method.
Your contributions get deducted from your salary automatically.
However, there are some age-related contribution caps in this case.
As per 2015 data, people below 50 can contribute a maximum of $18000.
Those above 50 could add another $6000 to play catch-up.
There are a few 401k variants where you pay tax upfront.
But for most, the tax liability is during withdrawal.
That puts a huge spanner in the works.
As a result, you would have to look at alternate investment opportunities.
You cannot rely on simply 401k.
If you just relied on this, you could end up with rather meager retirement funds.
This is exactly why it becomes important to spread out the retirement investments.
Just relying on one investment channel is never quite sufficient.
In fact, it could result in considerable monetary obligations in your old age.
4. Investing in IRAs
This is exactly where IRAs come to the picture.
The term IRA stands for individual retirement account.
There are many types of IRA accounts, and each comes with separate guidelines.
An average investor can contribute up to $5500 annually.
In case you are above 50, you can contribute $6500 a year.
The biggest advantage is that this amount is a tax-free investment.
An investor can use both the IRA and 401k savings tool simultaneously.
But in that case, there are some caps on your taxable income deductions.
It is very important to get a careful grip on your deductions.
Otherwise, your hard earned savings could go down the drain clearing tax liabilities.
That becomes a very important aspect, and you must pay attention.
In many cases, couples can get a certain advantage, if they file their returns jointly.
So when you begin to invest in IRA, pay careful attention to all the small details.
These can often shape the final savings that you end up with.
5. Investing in Roth IRA
This is another oft-used IRA variant.
In this, you don’t get any tax deduction on the basis of your contribution.
This is mostly a useful instrument to invest your after-tax earnings.
The advantage, however, is there are no tax liabilities either.
The money you invest is tax-free.
There is no liability on withdrawals either if you are around 60.
Another advantage in this is there is no age bar for withdrawing the money.
You can withdraw the money you contributed anytime without penalty.
However, this is not the case with the earnings on the savings you made.
This is distinctively different from traditional IRAs.
In that case, all early withdrawals attract penalty and taxes.
However, there are some salary limitations to be eligible to invest in these.
If you are single, you must earn less than $131,000 annually.
If you are married and filing jointly, you should earn less than $193,000.
You have to take into account many other limitations as well.
So this will be always a supplementary investment alternative.
You cannot have this as the only savings option.
That can severely, dent your overall investment outlook and retirement nest.
So with these, you almost always need proper planning.
That alone can help you realize better value for the money you are investing in.
6. Investing in SEP IRAs
This is another IRA alternative that you can explore.
This is primarily a retirement plan for self-employed individuals.
The term SEP means self-employed people.
In many ways, this is a simplified employee pension plan.
It is considered one of the best retirement investments in terms of associated charges.
From the low transaction cost to ease of administration, this is advantageous all for customers.
As per recent data, the pre-tax contribution is capped at $53,000.
If your business is not doing particularly well in any year, you don’t have to contribute that year.
So this can be a major relief for you when you are starting your business.
It gives you the necessary opportunity to recoup your loss if required.
This makes it one of the best retirement investments for self-employed professionals.
It helps them plan for their future a lot more constructively.
7. Guaranteed Income Annuities
This is another retirement investment option that you could explore.
Essentially, an annuity is an investment that guarantees a regular income later.
So, it pretty much works like an insurance scheme.
You invest today to make sure you get a steady income when you retire.
You can decide on the payment interval as per your convenience.
It can get paid every month or every quarter.
Investors can also draw the amount annually or even as a lump sum.
There are many annuity investment options too.
There are some single-premium annuities that can generate income immediately.
However, this is lucrative if interest rates are higher.
It is not very attractive in low-interest rate scenario.
The deferred income annuity is more popular.
You have the option for cash refund too in this case.
However, it is always vital to ascertain the reliability.
Choose companies that have a definitive return profile.
One simple way to determine this is by the rating assigned to the product.
Look for highly rated companies that have been in business for long.
There are many options from companies that have been doing business for over 50 years.
8. Invest in Bonds
This is another safe investment for your retirement nest.
In fact, bonds are often considered as one of the best retirement investments.
This is because of the relatively limited risk exposure of the product.
The concept of the bond is quite simple.
When you buy a bond, the Government or a corporation takes your money on loan.
As a result, they pay you interest.
This interest becomes the return that you earn on the money you invest.
Bonds generally have a time duration associated with them.
There could be long-term bonds or short-term options.
You even have mid-term bonds that have a limited time duration.
The returns help you maintain a steady source of income in your old age.
Bonds like annuities too have different gradings and ratings.
These ratings highlight the reliability of these bonds.
The higher the rating, the better the chances of garnering returns.
Rating also determines the bond’s financial viability.
The interest rates on the bonds can vary to a large extent.
You can have floating interest rates or even fixed rates.
There are several high yield bonds too.
Normally, the yields on the bond are higher, but they typically have a lower rating.
Another advantage of bonds is that you can decide the mode of buying.
You can either decide to invest in bonds directly or go for bond MFs.
These days, there are many bond ETFs as well.
Just like in any other MF or ETF, they help investors take advantage of the underlying value.
You can calibrate your bond investment to ensure regular cash flow.
The value keeps fluctuating as per the existing interest rates.
However, if you are looking for very high returns, bonds are not the best bets.
The scope of returns is relatively moderate.
9. Real Estate Investments
One of the most important aspects of retirement savings is the safety element.
How safe is your retirement nest?
This is exactly why real estate is considered one of the best retirement investments.
They offer a source of sustained income in the retirement years.
They do not have huge transaction expenses.
Most importantly, the rate of appreciation is also quite high in real estate.
You don’t even have to sell the property to generate cash.
You can easily put up the real estate property for rent.
It can be both commercial and residential properties.
They help provide a relatively stable source of income.
However, you must keep aside a certain amount of maintenance cost.
This should cover all types of sudden expenses.
The recurring maintenance cost is one of the key concern areas.
You must make sure that the rent you earn covers this cost.
Otherwise, the return ratio will become completely skewed.
Moreover, you must be careful about the location that you choose.
In case the locality is not good enough, you won’t get a good rent.
This will completely defeat the purpose of your investment.
So consult real estate experts, decide on a budget and then invest in real estate.
10. Invest in Gold
The best retirement investments also include some safe options.
In this context, what can be safer than gold?
Gold has been used as a reserve currency for centuries now.
This is because the relative safety and security that gold offers.
Its value has been appreciating constantly, and the overall returns are steady.
Most importantly, they can offer handy returns in case of sudden emergencies.
Even in terms of immense crisis, liquidating gold is always possible.
Historical data also indicates that the rate of return on gold has been scaling new highs.
Now there are different options for trading in gold.
You can either buy physical gold or go for exchange-traded funds.
Trading in gold futures is also an option.
Given the advance in technology, you can now take advantage of 24×7 trading globally.
The gold markets are vibrant globally.
So, investors can also take advantage of arbitrage options.
However, don’t just rush into these investments.
You have to understand the various ramifications of investment.
Gold trade extends across global markets.
As a result, the geopolitical conditions also impact your trade.
Therefore, you must be very careful about how the trade pans out.
11. Dividend Funds
Though these are not very popular, but it can be one of the best retirement investments.
This is because dividend funds take advantage of the steady dividend income from shares.
Essentially, these funds are a package of several such dividend-paying stocks.
There is a double benefit of investing in these funds.
On the one hand, you do not have any direct exposure to stocks.
But at the same time, you are able to take advantage of a steady dividend income.
A steady source of income is very important in your old age.
A dividend related income also has the scope of gradual increase in the amount.
However, you must be careful about funds with higher yields.
Normally high yield funds are also high risk ones.
Most times, retirement funds are all about safety and consistency.
Find out the source of the higher yield.
Then carefully calculate the kind of risk exposure you are comfortable with.
Take a call only on the basis of these two factors.
Therefore, we can conclude that your retirement income has to be steady.
The rate of return needs to match the higher expenses later.
But you cannot compromise the safety in any way.
After all, this becomes the foundation of a hassle-free old age.
It is very important to carefully calibrate the tax liabilities.
So, any option that can promise regular income with limited risk will figure in the list of best retirement investments.