As a person goes through life they need to seriously consider where they anticipate being when they reach middle age and subsequently retirement age. A person does not have to be an executive to be putting money away for their retirement. For example, Walmart, Sam’s, and Costco, all have 401-K type plans where they match contributions by the employee up to a specified percentage. Even if a person just saves 5% of their salary and the employer matches all or part of that, it is really surprising how fast a retirement plan will begin taking shape. Most employers that have 401-K programs have agreements with a respected mutual fund company that offers several different funds for the employee to chose from. The fund choices that the employee makes will be influenced by the age of the employee at the point in time that they are contributing.
It is not uncommon for a company offering a 401-K program to change fund providers if the current provider is not meeting their yield expectations.
A younger person will certainly want to select an index fund for one of their choices, as an example say 50% of their contribution and the matching contribution. These funds usually move in much the same pattern as the stock indexes , such as the Dow Jones , S & P Index, and New York Composite index. This type of fund may go up or down dramatically as the stock market indexes move up and down. But over a ten year period since the great depression, stock indexes have never shown a decline comparing the beginning and ending indexes. Other choices for that person might be 25% contribution to a Balanced Fund these funds are usually made up of high grade bonds and common stocks. This type of fund is less likely to fluctuate as much as an Index Fund and is considered more conservative. A third choice for say 25% might be a European Stock Fund that has foreign stocks and currencies, it is more risky than the balanced fund but the growth of the economies in Europe can be dramatic. If any of these choices do not look like they are doing well or you see better choices of funds that are offered within your 401-K program, an employee can make a specified number of changes each year.
A middle aged person or couple will want to select more conservative funds since they may not be able to leave the money in there for ten years. The result might be that they needed to take money out when the market has not performed well and do not have time to wait for it to recover. These investors might want most of their money in a balanced fund , a bond fund , and or a money market fund.
Life insurance needs to be a component of your family budget. A younger person can a significant term life insurance policy for a small amount each month. It helps protect the family against financial disaster if either the man or the woman that are breadwinners or taking care of the family pass away. Also it can provide money for education for the children that have had a loss in the person accumulating funds for their education. Paid Up or Cash Value insurance is generally not considered a good investment, these policies cost more than term policies and offer less coverage and must be in force for many years before the cash value is significant. The cash value can be used for low interest emergency loans but they must be paid back or the person could lose the policy.
In periods when real estate is doing well in the area where a family lives. Or if property values are depressed and a person can wait out the depressed values , they may make a significant profit. Investment in real estate can help provide future funds for retirement. Purchasing property for rental, land for development, flipping houses , are all ways some knowledgeable people have been able to accumulate funds to make their subsequent retirement a reality. Since the big decline in real estate values in many states several years ago, bank repossessions, tax sales by governmental agencies, and other property sales for liens, offer great investment opportunities to make a significant amount of money if the person accumulates enough to pay cash for the repossessed property. Many investors parlay one “repo” as they call it into two properties. They fix the repo up and resell it at a profit.
If the contributions by the employee were not taxed when the employee contributed to the fund taxes will need to be paid when the funds are withdrawn on that money. A Roth IRA is defined as a fund where the taxes on the contribution are deducted so that the contribution to the fund is after taxes. In that case, when the funds are withdrawn there is no tax on the employees contribution.
This Month’s Income Opportunity
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