How to Invest for Retirement
Retirement means different things for different people, whether that’s endless holidays, pottering around the garden or spending time with the grandchildren. Many people approaching their golden years want to be able to kick back but for many the need to work over and beyond 65 is becoming a horrifying reality.
This is largely because of pension cuts and because many people haven’t accumulated enough funds to live on well into retirement. As a nation heading towards a greying population, the state pension may be obsolete in a few years’ time as there won’t be as many people working making national insurance contributions to fund pensions. Therefore to ensure financial stability through retirement you need to devise a few ways to invest your money now.
There are number of ways to invest so that you can be financially secure later in life – each with varying levels of risk. Bonds, Stocks and Shares and pensions are the most common strategies. Here is a rundown of the pros and cons of each.
If a company needs to expand or move into a new market they may need to raise a substantial amount of capital that lenders can’t provide. Therefore they raise money by issuing bonds to the public. A member of the public can buy a bond which gives money to that company and is essentially an IOU. The company that has issued the bond then pays interest to the bond owner. The bond has a maturity date which is when the company has to pay the bond amount back in full.
Bonds are known as fixed income securities as you know the exact amount you’ll be getting back at the end of the term.
Stocks are another way of investing money into businesses. Stocks enable you to become a part owner as you buy a share in that company. You purchase equity and thereby become a part owner. The stocks and shares market is buoyant and can fluctuate on a daily basis, so this investment strategy does come with some risks. You aren’t guaranteed to make any money back but similarly you could end up making a nice little profit.
By buying bonds you become a creditor to the company and by buying stocks you have a part of that company. If the company was to declare bankruptcy, you have more rights as a creditor to the corporation to claim the assets than if you are a shareholder.
There are a range of pensions on the market, if you are unsure its best to seek pension advice, so you find a suitable investment solution for you. Pensions are more stable investment solution that comes with less risk. A pension is a long term investment that you can control yourself by directly paying into. After you’ve accrued a lump pension sum you then buy a pension plan which guarantees to pay you a monthly amount until you die. The main risk with a pension is that you could pay all of your funds into a pension scheme, then not receive as much of your money back if you were to pass away. However you may live a long life and that initial amount of savings wouldn’t have lasted all that time and so a pension is a viable solution.
Aurhor: Siobhan McBride writes on a range of financial and investment topics.