5 Realities to Guide You When You Choose Your Retirement Plan

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Choosing a retirement plan is no easy task. There are many different factors to consider, and the options can be overwhelming at times. Therefore, take your time when making this decision. In this blog post, we will guide you through some of the realities of choosing a retirement plan so that you know what to expect!

Your Retirement Budget

If not the most common way of investing for retirement, one way is through a 401(k) plan built into your job or workplace. This type of account accumulates earnings from employer contributions and employee deductions on their paychecks. 

The IRA (Individual Retirement Account) is a personal retirement account funded with money from your paycheck or any savings you may have. IRAs are also invested in stocks, bonds, or cash equivalents to grow assets for the future. 

Also, you can opt for annuity covers after taking time to compare annuity rates for your post-retirement income.

Your Risk Appetite

Riskier investments typically offer higher returns, but they also have a greater chance of loss when markets change, or unforeseen events happen. If your goal for retirement is preserving capital and not earning high yields on it, then a conservative portfolio with low volatility may be best suited for you.

Alternatively, suppose you want to earn interest income without taking more risks by investing in stocks. In that case, bonds and cash securities that don’t involve fluctuating prices (or even venture into real estate), an intermediate portfolio with moderate volatility might suit your needs better.

How Many Years You Have Before Retirement

Suppose you are close to retirement, stay in a traditional 401k plan or pension plan with matching funds from your employer. Then, you can make withdrawals without penalty and enjoy tax relief.

However, if you have more years until retirement, consider an IRA or Roth IRA as it is more flexible. With a Traditional IRA (but not ROTH) account, there are typically income limits where people cannot contribute after earning above certain levels ($97Kin 2018). However, this limit does not apply to self-employed individuals who can deduct their contributions no matter their income.

Your Potential Income Source Post-Retirement

A key question to ask yourself when considering retirement is how much income you will have in the future. Some people like taking a calculated risk to make up for any shortfall from their investments by increasing their monthly contributions post-retirement. 

On the other hand, some retirees don’t need much money because of more frugal living habits, so they choose not to worry about investing. 

The Amount of Debt You Owe

The amount of debt you owe in retirement can vary dramatically. Nevertheless, debt is a surprisingly significant factor when deciding how to retire, and it’s often not given the weight that it deserves.

The more debt you carry into your retirement years, the more critical getting out from under that burden becomes before retiring or even during retirement if possible.

Your retirement plan is the most crucial decision you’ll make, and it will shape your entire life. Therefore, you owe it to yourself to do as much research as possible before making an irreversible commitment. 

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