The aging population and the potential failure of social security have brought the issue of saving for retirement to the forefront for many people. There are numerous retirement investment tools available for retirees to start planning for their future.
With all of these options, the 401 (k) is the most popular. The popularity of the 401 (k) is due in large part to the fact that many employers offer this option, which also coincides with a certain percentage of their contribution. The amount varies from employers, but most range 25% to 100%. Another benefit an outstanding 401 (k) provides is that the contributions made by you as an employee are made with pretax income.
A 401 (k) plan is very flexible, and it gives you options regarding investment strategy. There are tried and true methods for investing in a 401 (k) that depend on your age at any given time. For example, a young person invests in a 401 (k), if the employer matches or not, has time on his side. This person can invest aggressively if comfortable doing so. Ups and downs will always occur in the market. The younger the investor, the more time there is to ride these fluctuations in the market. As an investor nears retirement, it would be wise to alter the investment strategy to a more conservative approach. This, in theory, makes the investment of money “safer.” but still more profitable than a traditional savings account.
In the past, only large companies could offer employees a 401 (k) plan for retirement. A 401 (k) retirement plan was not an option for self-employed. Fortunately, this is not the case in today’s market. Today there is a plan called the Solo 401 (k) or Individual 401 (k). These plans allow business owners without employees, partners or only a spouse to establish retirement plans that are very similar to the traditional 401 (k) offered by larger, more established businesses.
If you leave an employer with whom you have a 401 (k) plan, you need not leave your retirement investing in their hands. You have the option to do a 401 (k) rollover, and it is highly recommended that you take advantage of this option. By rolling over a 401 (k), you retain control over their investment options, as you should. When a rollover occurs, the money in the 401 (k) is rolled together in a container approved the investment. These include programs such as the Simple IRA, an IRA September and another 401 (k) just to name a few. It is best to talk to a financial adviser who can help you review all of the types of investment opportunities you have available to you.
What is almost never advisable is to withdraw the 401 (k) money. This is because of the 10% withdrawal penalty that is charged if the withdrawal occurs before the age of 59 years. When a rollover is used to deal with an accumulated 401 (k) investment, it should be done as a single transaction to avoid any such penalties or charges.
If you are looking for an investment tool as a way of saving for retirement, the first place to look is to your employer. Get all the information from them, knowing what you need to give, how much they can contribute and then talk to a reputable financial advisor to decide what steps to take next.
No matter how old you are right now – retirement investing is an issue to think about at any time.