We live in turbulent times, and there is no saying what can happen tomorrow or the day after.
Fortunately, there are some things that are still within our control. For instance, we can prepare for things we expect to happen, such as growing old and retiring.
But why is it important to save and invest for retirement?
To answer this question, we’ll talk about the difference between saving and investing, why we recommend doing both, the best retirement investment options, and more.
- Saving vs. Investing: What’s the Difference?
- Why Is It Important to Save and Invest for Retirement?
- When To Start Saving and Investing for Retirement?
- Best Investment Options for Retirement
- The Earlier You Start, the More You’ll Save
Saving vs. Investing: What’s the Difference?
Before anything else, let’s define the difference between saving and investing. These are terms that are commonly used interchangeably but actually have different meanings.
In a nutshell, saving is the act of putting money away for a future need. While some saving accounts may offer interest, it is not the primary goal.
What’s great about having savings is that you can easily access your funds whenever the need arises. It also doesn’t expose your funds to too much risk.
That said, its growth is painfully slow.
Meanwhile, investing is the method of placing your money towards a business, property, financial product, and other types of assets.
The intention is to grow the funds due to interest and good asset performance.
What we love best about investing is how fast your funds can potentially grow. However, the catch is that it also comes at a higher risk.
It is not uncommon for rash investors to win and then subsequently lose overnight. On the other hand, financial experts advise long-term investments.
The prolonged duration offsets the risk somewhat.
That’s because it is usually inevitable for established companies to grow after 10 years, for example, regardless of the lows they might be experiencing right now.
Why Is It Important to Save and Invest for Retirement?
Due to the inherent pros and cons of saving and investing, the best way to make the most out of your funds is to do both.
Saving will give you security and peace of mind.
It presents an opportunity for you to have some funds to dip into during emergencies. This way, you won’t have to deduct from your retirement plan anymore.
On the other hand, the higher rate of return that investing offers can give your retirement savings a boost, helping you enjoy a more comfortable retirement.
Why You Should Save and Invest for Your Retirement
Aside from these factors, here are the other reasons that answer why is it important to save and invest for retirement:
It’s unwise to rely completely on social security.
According to the Social Security Administration, the standard replacement rate that people need for a dignified retirement is around 70%.
The problem is that social security benefits can only typically accommodate 40%.
Replacement rate is the percentage of a person’s pre-retirement income that should go into their retirement savings so that they can continue living their current lifestyle.
Saving and investing will give you viable alternatives rather than just relying on social security.
Your gains from these accounts and assets will definitely help make up for the 30% replacement rate that social security lacks.
You’ll be able to take advantage of compound interest.
It is understandable why you might not be a big fan of compound interest when it comes to credit.
However, this form of interest growth is certainly a positive thing when setting up a retirement savings plan.
It is a system of computing one’s interest on top of an existing interest rate.
As such, you will find that the advantage of compound interest is more apparent when you have long-term financial goals.
Here’s a quick example of how compound interest works:
Suppose you deposit $2,000 into your account, which has an annual five percent return.
This means you will have $2,100 after a year and increase to $2,205 at the end of the following year.
Even if the annual rate of an account isn’t that high, compound interest can still make a difference over time.
You can also find the “snowball” advantage of compound interest in popular employee benefits such as 401(k).
However, it cannot be denied that saving and investing can give significant boosts, especially if you want your retirement savings to keep pace with inflation.
Case in point: according to a paper published by the Social Services Administration, retirement income has three pillars.
These are social security, employee benefits, and earnings coming from savings and investments.
You can put money in higher-risk, higher-reward investments.
Even the best employer-sponsored retirement plan still has its limits.
But while you can invest in other higher-reward investments, you also have to think about the higher risk.
As mentioned, more time provides the much-needed financial cushion against market risk and economic fluctuations.
Investing early gives you more freedom to diversify your retirement portfolio with long-term investment plans.
It will also help to seek the advice of an investment adviser or a financial expert with much investment experience.
You will have more control over your portfolio.
This post seeks to provide you with information and, thus, shouldn’t be taken as actual financial advice.
After all, there is no way for us to know your specific financial circumstances.
Indeed, saving and investing will require accountability but will also allow you more control over the accounts and assets that you want to get.
Saving and investing can protect you against inflation.
According to the latest statistical reports, the current inflation rate in the country is already at 6.5%.
With the current trajectory of our economy, who’s to say how much it will increase in the near future?
It is worrying, true, but having savings and investments (especially those with higher rewards) can help you grow your retirement funds.
As a result, you can be prepared for a financially free future despite inflation.
Having a diverse portfolio can give you peace of mind.
The added financial security, control, and diverse retirement portfolio of savings and investments can provide peace of mind.
In fact, we consider this a priceless benefit. If you need a reason to save and invest, make it this one.
When To Start Saving and Investing for Retirement?
When it comes to saving and investing, the earlier your start, the better.
Firstly, you will be able to maximize compound interest growth, as time plays a huge factor in managing high risk.
It can also give you plenty of time to learn and gain more experience in managing your money.
That said, we also believe it is never too late to start.
Even if you only begin growing your retirement fund in your 40s, chances are that you still have a good 20 years to save and invest.
Best Investment Options for Retirement
We now have a better understanding of how crucial saving and investing are when growing one’s retirement funds.
The next challenge is choosing the right accounts and assets to put your hard-earned money into.
There are plenty of different options you can choose from. However, we highly recommend you check out IRAs or individual retirement accounts:
Let’s Talk More About IRA
Simply put, an IRA is a savings account specifically designed for people who wish to grow their retirement funds.
That’s why most of them are long-term accounts with multiple tax advantages.
Opening an IRA is just one of the many kinds of retirement plans out there. IRAs can also be categorized further into different types.
Traditional IRAs are tax-deductible, so you can subtract the amount you put into your account from your taxable income.
Another popular type of IRA is Roth IRA.
Unlike traditional IRAs, it isn’t tax-deductible, but the distributions will be tax-free. This means you won’t have to pay taxes on your investment gains.
The catch? Roth IRAs have income limitations before you can contribute to one.
Our favorite type of IRA is the self-directed account.
As the name suggests, this type of IRA allows its account holders more freedom on where their IRA money gets invested in.
Self-directed IRAs come with tax benefits.
There are even self-directed accounts referred to as gold IRAs, specifically intended to be invested in gold and other precious metals.
When it comes to investing, gold IRA remains one of the most popular IRA options out there, and for good reason.
Just think about it. Gold has steadily preserved its value for centuries already.
Empires and economies have already fallen, but it is still considered as valuable as it was long ago.
Gold and other precious metals, such as silver and platinum, have a good track record of maintaining their worth compared to other forms of assets.
Are you interested in investing in gold and other precious metals? If so, you will have to work with a reputable gold IRA provider.
Is it safe?
A word of caution: There is plenty of misinformation about gold IRAs. For instance, you will find online ads that invite people to open “home storage gold IRAs.”
They are terribly misleading.
According to the Internal Revenue Service, physical possession of IRA-purchased gold is allowed only for a bank or IRS-approved nonbank trustee.
Not abiding by this rule will put you at risk of potential legal liabilities. One fine example is this report of a couple who stored their IRA gold at home.
They now owe the IRS $300,000 because they didn’t store their IRA gold at an IRS-approved facility.
Trustworthy Gold IRA Providers
The good news is that working with a reputable gold IRA provider can help prevent circumstances like these.
In addition, you will likely get an account manager who will assist you every step of the way, from helping you buy gold to shipping it to IRS-approved storage facilities.
Augusta Precious Metals specializes in both gold and silver.
With over a decade of experience in the industry, it doesn’t come as a surprise that it has one of the most streamlined services.
You don’t even need extensive knowledge and training to start investing.
Augusta Precious Metals is proud of its team of gold and silver experts who are always ready to assist you every step of the way.
The company is also highly rated across various reputable review channels.
Another reputable company is Advantage Gold.
It has a very impressive six-year streak as the best gold IRA company, according to TrustLink.
Aside from that, it has also been featured on other reputable websites such as Forbes, The Wall Street Journal, and USA Today, just to name a few.
What really sets it apart from others is its efforts in educating its clients.
Gold Investment Options
There are only particular gold products you can purchase with your self-directed IRA. Coins and bullion are the most common options.
There are also only certain coins that the IRS approves of. This serves to ensure the purity and overall quality of your assets.
Besides, purchasing physical gold isn’t your only option.
You may also invest in the stocks of gold-related industries, including mining and jewelry companies.
Finally, you may also consider gold exchange-traded funds (or ETFs) and mutual funds.
The Earlier You Start, the More You’ll Save
If there are three points we want you to take away from this article, they would be:
- Saving and investing are equally important to grow your retirement fund.
- The earlier you start growing your retirement portfolio, the more you’ll be able to protect yourself against risk and inflation.
- If you’re planning to invest in gold and precious metals, working with a reputable gold IRA provider, such as Augusta Precious Metals, is ideal.
In the end, we hope we were able to answer why it is important to save and invest for retirement.
Now that you understand the reasons why, as well as know of investment opportunities to try, you can better prepare not only for your future but also that of your family.