It is a sobering thought that just 54 percent of US workers receive retirement benefits from their employers. Even more worryingly, many people are under the mistaken impression that Social Security will provide for the bulk of their retirement needs. The truth is, Social Security is and always was, intended to offer the minimum of protection.
For a comfortable and stress-free retirement a combination of plans and schemes is required; personal savings and investments, employer funded retirement plans and Social Security. No matter what you age, you are never too young to start planning for your future and ultimately, retirement. In fact you are never too old either.
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The big question is, "Where do I invest."
The first point to remember is that even though we are living in challenging times it is essential that you begin by putting even the smallest amount aside every month. Remember, everyone is living longer than ever before and your retirement fund may have to support you for between 15 and 30 years.
Think about what your life goals are and list them in order of priority; aim to record just your top five goals. Always put retirement at number one and include a timescale, say from five to 20 years. Next make a note of how much effort you are prepared to expend achieving each goal and how much you estimate it will cost. Finally, take another look at the list, discard unachievable goals and then make a new list with your revised priorities.
Next you need to calculate how much you are actually worth, which involves adding up the value of all your assets and deducting your liabilities. Assets typically include the amount you have in bank accounts; the value of your home, stocks, retirement plans etc. Liabilities are the amounts you owe to other people or companies etc.; for example, credit card bills, outstanding mortgage, loans for cars or similar and taxes owing. Hopefully your assets will be worth more than you liabilities, a figure that represents your net worth. Be sure to reassess your life goals and net worth calculation each year.
Over the coming years you should aim to increase your net worth by investing wisely. Your net worth when you reach retirement age is the amount you have to support you throughout your retirement.
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Where to invest
If you need money to pay for a goal you have set to be achieved within five years you should invest the sum required in a scheme that allows for easy access, which generally means a lower rate of interest being paid. Conversely, funding for goals that you are looking to achieve in say 20 years, including retirement, can be invested in schemes that require your cash to be tied up for a longer period, but which earn a higher rate of interest.
Common types of investments
Bonds are seen as being a safe investment, especially federal government bonds. All other bonds carry an element of risk, which is directly related to the amount of interest they pay. Liquid bonds is the term used to describe bonds that are easy to buy and sell, while illiquid bonds are difficult to buy and sell; they usually represent a company close to bankruptcy. It is always advisable to use either a full service or discount brokerage. When investing in bonds it is worth noting that they are rated by companies such as Standard and Poor's and Moody's. High quality bonds score high ratings, while â€˜junk' bonds score low.
Preferred stock is part stock and part bond. The advantage it has over common stock is that in the case of a bankruptcy preferred stock shareholders take priority over ordinary stockholders. A further advantage is that a dividend will always be paid on preferred stock. Due to financial constraints it may not be possible for the company to actually pay a dividend every year, if it fails to do so it must pay any missed dividends on preferred shares before it pays anything to ordinary stockholders.
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Stock can represent a safe form of investment for those who invest in blue chip companies that pay regular dividends and enjoy a steady growth in value. However it is also possible to purchase stock in risky ventures, such as oil exploration, which can result in either massive profits or disastrous losses for investors.
Your next step should be to review the financial news sites, as well as financial commentary sites, to get a feel for what's happening in the markets on a global scale. Anyone new to this market would be well advised to discuss their specific requirements in terms of attitude to risk with a reputable financial advisor.