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A Discussion of Investments for Retirement

Many people ask how to invest for their retirement. A lot depends on where you want to be in life, but the basics are usually the same. You want to be able to live on the money that you make while your dependents are still young and healthy. Some people are very lucky and are able to get a lot more money than their parents could have ever done. Others are not so fortunate.

Investing is basically a way to possibly increase the amount of cash you currently have. The goal is essentially to purchase financial instruments, also known as investments, and hope to sell them at a much higher value than what you originally paid for them. Investments can be things such as stocks, bonds, mutual funds, and annuities. You typically invest in these items through a bank, such as a CD, IRA, or financial brokerage account. There are also options available for more conservative investments and those who don’t want to manage risk with their investments as frequently as more aggressive investors.

Most people start out with certificates of deposit (CD) funds. These are low-risk investments that pay out regularly. As the investor deposits more money into the savings account, it grows according to a set schedule. When you invest, you re-invest your profits.

Another option is saving for a pension or saving for a college education. Typically, you take out a Roth IRA with your traditional bank account. With both of these types of accounts, you are allowed to invest with real funds or with stocks and bonds depending on which ones you prefer. If you want to be able to manage risk more actively, then investing in stocks and bonds is probably a good way to go.

CDs also offer a tax deferral. You do have to pay taxes when you withdraw your money, but most banks charge no tax during a year’s period of saving. This could earn you a higher return than a saving or bond account, but you also pay more in fees. Some CDs have provisions for early withdrawal charges. However, the rates and terms for the various types of bank products vary widely.

An individual retirement account (IRAs) are similar to savings accounts, except they have restrictions on how the money is invested, how much is withdrawn, and the costs involved in the transactions. Most IRAs have penalties for early withdrawal. Again, the terms and rates for these are variable. If you need a product that offers higher returns but lower fees and costs, then saving may be the best way for you.

A final consideration when it comes to investing for retirement is buying stock in a company that is well known and has a long history. The reasoning for this is that if a company is doing well, it usually will not go down as the investing public may fear. A financial professional can help you determine which companies are safe and which are not. Also, keep in mind that investing directly in a company can yield higher returns, but you may have to give up some purchasing power. For instance, trading shares in a large corporation that buys products regularly might give you a greater purchasing power than trading shares in a company that doesn’t do so. You should discuss all this with a financial professional.

In summary, there are several different ways to save for retirement, including saving for a pension, investing in stock market funds, using self-directed IRAs, and purchasing bank products like savings accounts and bonds. The best thing to do is to consult an expert to discuss all of your options and find out which would be best for you. Doing so will allow you to make the most informed and strategic decisions regarding your investments for years to come. To learn more about retirement planning, visit Bankrate’s financial planning section.