No matter how much you love your job, at some point, you’ll want to retire. According to data published by Yahoo! Finance, most Americans retire at age 64, even though Social Security benefits don’t kick in until age 67.
It would be nice to retire earlier, but doing so before you become eligible for benefits may not work. In fact, most people can barely live on Social Security benefits; thanks to inflation, what seems like a decent payment now won’t be as great in the future.
If you want to retire comfortably, you’ll need more than Social Security benefits. You’ll need a strategy, a plan, and several other sources of guaranteed income, including investments.
Why investments are the key to a comfortable retirement
When you think of retiring comfortably, what comes to mind? For most people, having more than enough money to live on is essential for a comfortable retirement.
After that, it’s all about location and community. But without a solid financial foundation, retirement might be a struggle. Investments, such as a retirement annuity, can help guarantee that you’ll be able to retire comfortably.
Investments can make your retirement comfortable because they’ll put money in your pocket every month. If you choose the right ones, you’ll earn far more than your Social Security payment. If your investments pay off, you won’t just survive; you’ll thrive.
These two investments will help you retire
Whether you’re new to investing or you’ve been doing it for a while, here’s where to focus your attention and money in a way that will support your retirement.
1. Retirement annuities
Retirement annuities are investments that pay a monthly or annual income for the rest of your life. They are essentially contractual agreements with an insurance company that provide you with a guaranteed return.
You can pay for your annuity with a lump sum or make the payments over time. Unlike other investments, your initial investment will never be at risk. The payouts tend to be around the same as CDs, though.
Many people don’t invest in annuities because of the early withdrawal penalties. However, they’re great for retirement income, since you shouldn’t need to make any early withdrawals.
Types of retirement annuities
There are two types of annuities: fixed and variable. Fixed annuities provide predictable income that’s guaranteed, while variable annuities payout is based on the performance of your selected investments in stocks or bonds.
If you have enough money to invest in both types, you’d be smart to get both. For example, if you have a fixed annuity and a variable annuity, you’ll receive a sure source of income from the fixed annuity no matter how your variable performs.
The variable annuity will still provide a guaranteed income, but a large portion of your total income will depend on how your chosen stocks behave over time. There’s more risk in a variable annuity, but if you have a fixed annuity for backup, you may relax.
2. Certificates of Deposit (CDs)
CDs are a traditional investment that is great for retirement. A Certificate of Deposit is an investment opportunity you can get by leaving a certain amount of money in your bank account for a set amount of time.
In return, you receive a set percentage of your investment each month. Some banks and credit unions offer CDs for as little as $500, but the highest-paying CDs will require a minimum of $10,000 to $25,000 for a period of between two and 10 years.
The lowest yield is usually 0.4% and the highest is about 1.45%. If you want to get a higher yield, you’ll have to invest more money for a longer period of time.
The best way to use a CD for retirement is to create a CD ladder. A CD ladder means you have multiple CDs set to mature at varying times.
Thus, you might open two CDs per year for ten years and stagger them so they mature at different times across the calendar. There are early withdrawal penalties for CDs, but if you’re using them for your retirement, you won’t want to take an early withdrawal.
Personalize your retirement with the right investments
It’s important for you to retire comfortably and be happy. You deserve to live in a region and a neighbourhood where you’ll be happy. Start investing in your retirement today, and you’ll reap the benefits when you need them.