How hard are you working to prepare for your retirement? You’ve probably already looked at several of the options available to you when it comes to finding a resting place for your retirement funds.
Most options can be placed into one of two categories. Either the money is being held in a savings account or the money is being used to invest.
Both options are a valid way to prepare for your retirement. In fact, a combination of both methods may be the best way to go. But as you make the decision on what to do with the bulk of your money, here are some things to consider.
Opening an actual savings account keeps your retirement money safe. It sits in the account and in most cases there are absolutely no risks associated with it. It gains interest each year, albeit a small amount. So, if there are no risks, why isn’t everyone going this route?
While the money is safe and sound in the savings account it isn’t really growing. Look at the current interest rate for a savings account.
Think about the amount you already have saved for retirement. Imagine putting it in the account and using the interest rate, figure out just what you will have earned at the end of the year. The results can be dismal.
A savings account provides security and stability, but your money just isn’t going to grow and work for you. It sits stagnant and won’t be making major increases any time soon.
A savings account provides security and stability, but your money just isn’t going to grow and work for you.
Investments are almost the exact opposite of the savings accounts. Your money is actually being used.
There are several different ways to invest and you are getting a return on the money that is being used. Depending on the amount of risk and the duration of the investment, you could see a rate of return that makes you consider retirement years earlier than expected.
If the return is so high, why isn’t everyone investing? Return rates aren’t guaranteed. When you invest money into something you are taking a risk.
There is a chance that your money might not grow at all. At the end of the year you could have the exact same amount that you started with. On the downside, you could even end the year with less money than you started with. It is a risk and each investment takes a chance.
It is possible to choose investments that are lower risk. Some people want to invest but they aren’t looking to make a major rate of return.
They just want the funds to grow in a steady manner. The savings account doesn’t offer these individuals enough of a growth, so they turn to low-risk investments.
So, what should you be doing? Meeting with a financial adviser can provide you with the detailed information that you are searching for.
However, as a general rule, it is always a good idea to have a mix of both methods. Many younger people choose to invest more of their money than they save.
As they get older and closer to retirement, they may change the way they take care of their retirement funds. They may move more money into savings accounts and put their investments into lower risk categories.
Robert C. Henderson is the President of Lansdowne Wealth Management in Mystic, CT. His firm specializes in financial planning and investment management for individuals approaching retirement or already in retirement, with a focus on the particular needs of women that are divorced or widowed. Mr. Henderson can be reached at 860-245-5078 or bhenderson@lwmwealth.com. You can also view his personal finance blog at http://lwmwealth.com/blog and the firm’s website at http://www.lwmwealth.com.
photo credit: Lucas Lucas
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