Retirement Savings Plan – IRA, 401K, CD or Stock Market?
When it comes to a retirement savings plan there are numerous choices to consider and evaluate. You can choose a 401k, an IRA, a CD, stock, or even a savings account, but before you decide where to park your retirement capital there are some factors to think about. A Certificate of Deposit is a
retirement savings account vehicle that allows you to deposit your capital for the specified time and receive interest on your money as a result. These products are very safe and conservative but the return you receive is not very high because there is little to no risk involved. There are high yield CDs that can be found but these vehicles are usually not offered by well known banks unless you have a very large amount to invest, and lesser known banks or financial institutions may not be low risk.
Every investor may have a different ideal retirement savings plan, depending on your acceptable risk levels, desired investment goals, and identified strategies. An IRA is an Individual Retirement Account that follows you through life, instead of following your employer like many 401k plans do. IRA and 401k plans may have different contribution limits and plan requirements in place, and many small business retirement plans offer matching contributions from the employer so your money will grow faster. The stock market is a risky venture for retirement capital because you will need these funds when you decide to retire and the volatility of the stock market makes capital loss a distinct possibility. The gains seen in the stock market for a successful trade can be large though, and some investors choose to use stocks as a retirement investment vehicle.
A diverse retirement savings plan is the best option. As the saying goes you do not want all of your eggs in one basket just in case the basket is dropped and the eggs break. Many individuals choose to have a 401k or IRA, or both, along with Certificates of Deposit and some stock holdings. Every investor is different and unique, and the right combination of investments for you may be all wrong for another investor. If you want to use conservative investments and safe
retirement savings options that will help you hedge against losses and high risk then a conservative 401k or IRA may be combined with low risk CDs in your retirement portfolio.
When choosing your retirement savings plan look at the amount of risk you are willing to take with these funds. The tax advantages or drawbacks are also important. High income investors may see tax advantages using some methods but have higher tax liabilities using another investment method. Examine which choices will help you achieve higher than average retirement savings while staying within the risk levels you have set. The younger you are when you start investing the more risks you can afford to take, and this translates into higher returns in many cases. If you have access to a 401k that offers employer matching make sure you qualify for the maximum amount each year so you do not miss out on free money that can add up over the years.