Senior Investments: What Are the Best Retirement Investments?

While timing is essential to investing, smart investments at any age can be effective. Even if you’re in your 50s, there’s still time to earn returns on investments. The key is to learn which investments offer advantages and disadvantages that are favorable to your particular situation and investment portfolio.

Updated on Jul 20 2018

It’s important to get on the same financial page as your partner or spouse and devise a joint investment plan so you can both work toward the same goal. An investment advisor can help you strategically plan which investments will most likely give you the best return. Here are a few to consider:

Investments specifically for payout in retirement

1. Social Security

The Social Security program is funded through payroll taxes collected by employees and companies. Americans who have been contributing through payroll can start receiving payouts as early as age 62. However, it is highly recommended to wait to receive Social Security payouts as you’ll greatly increase your monthly allowance.

  • If you work until age 66 or older, you will increase your monthly benefits by 33 percent or more.
  • Age 70 is when Social Security has reached maximum value, so many seniors are working longer and waiting to claim benefits at this age.

2. 401(k)

A 401(k) is a retirement plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes are not paid until the money is withdrawn from the account.

Whether you’re proud of your current 401(k) situation or not, by the time you reach 50, you should consider participating in the program aggressively. According to the 2016 Retirement Confidence Survey, 15 percent of workers eligible to participate in their workplace 401(k) plans do not, which is why many seniors have saved less than $10,000 for retirement.

The minimum level at which you should participate is contributing enough to grab all available company matching money. If your employer offers a typical match — say, matching 50 percent of your contributions up to six percent of your salary, be sure to contribute at least that six percent. If you earn $50,000, you’ll be socking away $3,000 and your employer will add another $1,500. Just think; this is free money.

Gradually increase your contributions

If you can’t start contributing at a high level, start as generously as you can, and aim to increase your contribution regularly. If you’re currently contributing 10 percent of your earnings, consider making increasing that to 11 percent next year and 12 percent the year after. The key with 401(k) is to invest as much as you can over time.

You and your spouse can literally catch up on retirement, if needed, by participating in the 401 (k) “catch-up” contribution.

3. Roth IRA

A Roth IRA is a special retirement account where you pay taxes on money going into your account and then all future withdrawals are tax free.

To contribute the maximum

You can contribute the maximum $5,500 to a Roth IRA ($6,500 if you are age 50 or older by the end of the year) if you are single or the single head of a household and your modified adjusted gross income (MAGI) is less than $118,000. If you are married filing jointly, you can contribute the maximum amount to a Roth IRA if your MAGI is less than $186,000.

To make a partial contribution

At higher income levels, you can contribute less, based on a formula devised by the IRS. The relevant income figures:

  • You are single and your MAGI is between $118,000 and $133,000.
  • You are married filing jointly and your MAGI is between $183,000 and $193,000.
  • You can’t contribute to a Roth IRA at all if your income is above those levels.

Special rules apply to married couples who live together at any time during the year, but file separate tax returns. A certified financial planner or investment advisor can help you determine what makes sense for your unique situation.

4. Traditional IRA

A traditional IRA is a way to get tax advantages while saving for retirement. Contributions you make to a traditional IRA may be fully or partially deductible, depending on your financial circumstances. Generally, amounts in your traditional IRA, including earnings and gains, are not taxed until distributed.

Traditional IRAs come in two varieties:

  • Deductible — A deductible IRA can lower your tax bill by allowing you to deduct your contributions on your tax return. Essentially, you get a refund on the taxes you paid earlier in the year.
  • Nondeductible — You cannot deduct contributions on your tax return with a nondeductible IRA.

You can make catch-up contributions to your traditional or Roth IRA up to $1,000 in 2017, which is a great incentive if you’re over 50 and need to catch up on retirement savings.

View this chart to learn the similarities and differences between a Roth IRA and a Traditional IRA.

5. Annuities

Annuities are simple, long-term investment products. In their most basic form, you give an insurance company an amount of money, called a premium, either in a lump sum or periodic payments. In return, you may elect to receive a steady stream of payments over time.

In reality, annuities are complex and don’t always provide the simple “safety” they promise. They typically have high costs, complex restrictions and other risks that could offset the potential benefits. They make sense in certain situations, which is why you may want to contact a professional advisor to determine whether annuities make sense for your situation.

6. Bonds

A bond is a debt investment in which an investor loans money to an entity, typically corporate or governmental, which borrows the funds for a defined period of time at a variable or fixed interest rate.

Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are debtholders, or creditors, of the issuer. They have specific rates and maturity dates.

There are three main categories of bonds:

  • Corporate bonds are issued by companies.
  • Municipal bonds are issued by states and municipalities. Municipal bonds can offer tax-free coupon income for residents of those municipalities.
  • U.S. Treasury bonds (more than 10 years to maturity), notes (1–10 years maturity) and bills (less than one year to maturity) are collectively referred to as simply “Treasuries.”

A financial advisor can help you determine whether a bond is a good financial move for you and your spouse.

7. Stocks

Also referred to as “shares” or “equity,” stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.

There are two main types of stock:

  • Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends.
  • Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares.

General wealth building investments

Having a well-balanced portfolio is important in retirement. You and your partner should consider these wealth building investments in addition to your investments that are payable during retirement.

1. Personal Savings

Setting up a personal savings account and setting aside money each paycheck through direct deposit is a great way to accumulate funds for investing. Saving becomes a habit, a way of life after a while that pays off ten-fold over time, if done right.

A retirement financial planner can help you find out what savings rate makes sense for you to set aside each paycheck, but at 50, you and your spouse should consider putting aside 20 to 30 percent of each paycheck, if you can. If your children are out of the house and no longer a fiscal responsibility, you might even be able to set aside an entire salary while living off one spouse’s salary. Again, having a joint plan with your partner or spouse is helpful so that together you can fill the gaps of retirement funds, as needed.

2. Real Estate

There is a lot of potential to make money in real estate investing, however there is also risk, depending on the market. Make sure to research the market to determine whether your real estate investment makes sense.

  • Family Home — The family home is an investment that often pays for a lot of retirement. If planned well, you’re getting close to paying off your principal balance on your house or have already done so as you reach retirement. The equity you receive as your house gains value over the years can be a great nest egg if you decide it makes sense to downsize or if you decide to move into a retirement or senior living community.
  • Basic Rental Property — Savvy real estate investors find a rental property or properties if the market is right for buying at an affordable rate and then renting for profit as the value increases over time. Timing is key with rental properties as you should aim to plan the rental property purchase during a buyer’s market when the price is right and you’re not going to lose value. You need to make sure the location is one that ensures there is demand for a tenant as you can quickly lose money if the property/properties is vacant for months at a time.
  • Real Estate Property Trading — Property trading, also knows as a like-kind exchange or a Section 1031 exchange, allows real estate investors to defer capital gains or losses when they buy or sell a property. This kind of exchange keeps the taxman out of the deal until later, when the property is sold. Basically, the like-kind exchange encourages investors to rebalance real estate portfolios, which unlike individual stocks and bonds, can make up a significant portion of a portfolio’s value.
  • Real Estate Investment Trust (REIT) — A REIT is a company that owns or finances income-producing real estate. REITs are modeled after mutual funds and provide investors regular income streams, diversification and long-term capital appreciation. Typically, REITs pay out all of their taxable income as dividends to shareholders and, in turn, shareholders pay the income taxes on those dividends.

Senior Investment Planning

In order to be prepared for retirement, it’s important to educate yourself and plan investments while there’s still time for them to make money for you. Ideally, you’ll plan investments in your 20s, but having a balanced portfolio means you can invest at any point in your career. Choosing the right investments for your unique situation can help you get the return you desire. A senior financial advisor or planner can help you determine what investments make sense for you and your family.

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