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| Other Investment Options: Beyond Your Retirement Plan |
| Although Uncle Sam has limits on the amount you can contribute to tax-deferred 401(k) and IRA accounts, it doesn't mean you should stop saving if you've maxed out those accounts. |
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Here are a few other ways to save. First, there are brokerage accounts. Although this type of account doesn't enjoy the tax benefits of a defined-contribution plan or IRA, it's always better to make money and pay taxes than not to make money at all. So consider opening one if you've invested all the money you can into your tax-deferred retirement accounts.
Another option is an annuity, a type of contract sold by life insurance companies that guarantees a series of fixed or variable payments to the holder, the annuitant, at some future time, usually retirement. Annuities come in a lot of different flavors. There's an immediate annuity, which ensures you will receive a set amount of money in periodic installments for the rest of your life. The way an immediate annuity works is that you hand over a lump sum of money to an insurance company and, in return, it will send you a check periodically (which is based on the amount of the lump sum, your age and gender, as well as the investment and benefit options you select). The insurance company will send you that check until you die—no matter if you die 5 years from the time you sign up or 40 years. The beauty of an annuity is that you don't have to live in fear of running out of money in retirement. There is also a deferred annuity in which you make payments over a number of years instead of paying a lump sum. Because those payments grow tax free, a deferred annuity tends to be used more as an investment vehicle and is usually established at least a couple of years before retirement. Although all your earnings grow tax free, you will have to pay ordinary income tax on your withdrawals. Meanwhile, some annuities protect your principal by locking it into a fixed interest rate (fixed annuity); while others will try to grow your principal by investing it in various funds (variable annuity). Each has its own pros and cons, and carries different fees and payout amounts. A financial professional can help you sort through the options to help you determine what's right for you. There are many other ways to invest, from collectors' plates to baseball cards. However, collectables can be very risky investments as their value can fluctuate widely over time. In fact, most experts will tell you to buy collectables mainly for the enjoyment, not as an investment. Gold is another popular investment. However, even though commodities such as gold are a good way to diversify a portfolio, they probably should never serve as a core investment. Of course, for many people their biggest investment is their home. But while you may be able to live out your retirement snug in your chalet, you shouldn't necessarily rely on it as an investment you could sell to finance your retirement. |
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Questions & Answers | |
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| Once you've contributed all you can to your retirement accounts, consider: | |||
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