Investing for Retirement

One of the biggest worries about retiring is the question of how to fund your living expenses for the duration of your retirement period. Most people do the basic thing which is to invest in a pension plan through their employer. If you don’t already have a workplace pension in place and are over a certain age and earn more than a set amount, then your employer may automatically enroll you for a workplace pension but investing for retirement deserves more planning and thought than that.

Advantages of Employer Sponsored Pension

The advantages of investing in an employer sponsored pension are numerous.

For one thing, your employer will contribute to it, and so will the government via tax deductions/credits for your contributions. In other words some of the income tax that you would have paid just goes right back into your pension fund instead of the government’s coffers. Plus this pension will always be yours, regardless of whether you leave your employer in the future. While doing this can help you cover your living expenses when you retire, the simple fact is that it may not be enough for everything that you want. Depending on your contribution level, an employer sponsored pension   may be just enough to become a hand to mouth experience for every month. In old age, you would most likely prefer to live more comfortably than that so let’s look at some additional alternatives…

Alternatives to Employer Sponsored Pensions

Investing in annuities is another option. The concept is a simple one. What happens is that you enter into an agreement with an Insurance company. You agree to pay them a lump sum of money or make regular payments and the insurer then gives you a fixed amount of money every month after your retirement.

The advantage is that you can’t outlive your retirement income, so even if you live to be over 90 or even a hundred years of age, the insurance company has to keep on paying you. Thus you might end up getting a whole lot more than what you paid them. On the other hand, if you only live a couple of years after retirement, the insurer keeps the money balance. Be sure to invest with a reputable insurance company and you can depend on a regular income when your retirement comes. This makes annuities a good complement to other retirement plans.

See Is a Retirement Annuity the Answer for your Retirement Savings? for more information.

Another type of annuity is called a variable annuity. What happens is that you pay in capital for a variety of investments that you choose yourself. In this case, once you start receiving the payout, you continue to receive payments until the principle is used up. So there is no guarantee that it will last your entire lifetime. But the insurance company who you have partnered with will give you certain guarantees known as riders over that portfolio. Some of these annuity products come with very attractive riders. Including a “lifetime income rider”.

Bonds are another good choice for investing money for your retirement. Buying a Bond means that you are essentially giving the government or a company a loan. You are paid interest on the bond for a certain period of time and when it reaches maturity, your principal sum is paid back to you. It is the interest itself that becomes a steady source of income.

See: Invest in Structured Bonds?, What are Company Bonds?

Real Estate- You can invest in property if you have the funds and then rent it out. During your working life the tennant helps to pay off your mortgage and then hopefully, in retirement, the mortage is paid off and the rent payment is pure income. This is an excellent way to ensure that you get an extra income every month as long as you have a good tenant. However, just like every other investment, real estate does have some disadvantages too. You as the landlord will be responsible for all maintenance costs and there may be other unforeseen expenses as well. However a good portfolio of investment properties can be a real boon in retirement. If you would like the advantages of real estate investment without the headaches you can invest in Real Estate Investment Trusts (REITS). See: Is it a Good Time to Buy REITS? for more information.

See Also: Doing the Roth Arithmetic

About the Author:

Christopher is a thoughtful writer who always comes up with something unique. He has a wonderful sense of writing and communicating his thoughts in an easy-going manner. He is associated with www.isarates.org.uk through which he keeps the readers updated and aware. He is a loving dad and caring husband who likes to cook for his family during vacations!