Retirement Advice For A Terrible Economy

27
September

When the economy as bad as it has been, making money seems daunting enough. It is that much harder to save money. However, it does not matter if you are a couple of years away from retirement or a couple of decades away. Retirement planning is essential. You will not be able to rely on social security much longer if at all, so investment planning is the key to a successful retirement.

First, let’s look at a case where your retirement is a long way off. A bad economy is usually accompanied by a dwindling stock market. If you have a 401k and are several decades away from retirement, odds are the majority of your 401k investments are tied up in stocks. If you are regularly checking your balance, you will likely see the effect of the down stock market. However, it is important to remember that your 401k investments are diversified. You do not have to worry about one stock tumbling and ruining your entire savings. If you are many years away, it is best to remain patient. After all, you are not going to be using that money for a long time. If you wanted to, you could convert more investments in to bonds, but you stand to lose a lot of potential gains once the economy turns around. Speak to your plan advisor and make sure your portfolio is diversified, and you should be able to weather the economic storm.

If you are closer to retirement, chances are your 401k investments are already geared toward bonds. Bonds are more secure because they have less risk than stock investments. You don’t have as high a potential yield, however if you are closer to retirement age you may not be concerned about that. Talk to your plan advisor and make sure you have a good ratio of bonds to stocks to ensure that your 401k account is secure.

If you are closing in on retirement age, chances are the 401k is not your only plan. For one, you should start saving your money in interest bearing accounts. In addition to savings accounts you could use money market funds or a CD. These are essentially cash investments that you are able to draw on should you have unexpected expenses. Best of all, you won’t be ruining your other investments. The longer you can wait to draw on those, the better off you will be. It is a good idea to aim for one to three years worth of living in cash equivalents. Of course, that could be challenging if your income is not sufficient or if you are starting to plan late.

Another option you have is to purchase an annuity. An annuity basically means that you will receive a fixed disbursement. The most typical annuity is a pension. Not all companies offer pension plans, but you still can purchase an annuity. An annuity will protect you should there be a downturn at the time of your retirement. It essentially provides stability to your retirement fund, much in the way insurance does. If an annuity is something you want to consider, it is advised to talk to your financial planner. They can advise you on the benefits and risks of purchasing your annuity. The obvious risk is that if the market improves, you will still receive the same annuity payment. You have less risk, but less reward.

The bad economy seems daunting, but sticking with your investment strategy is best. Invest in cash plans or equities, and make sure you have a diversified portfolio. If you have all your money tied to one thing, it is time to do some shuffling. That will help eliminate a lot of risk.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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