Pensions - What Should I Do ?

One of the milestones in an individual’s life is retirement. Retirement is that period in life when an individual can look forward to being on their own schedule, doing what they want and not having to work or work as much as they did during their pre-retirement years.

Enjoying the benefits of retirement, however depends on a variety of factors and some of them quite critical. Of these factors, one of the critical ones is ensure that you have done the proper planning in advance and have arranged your finances properly so that you will continue to enjoy life during retirement.

In addition, it is important to make sure that one’s money still works even though an individual has stopped working. Therefore, it is important to understand some of the retirement income investment options available that a retiree can utilize to make sure that their money keeps pace with their needs and inflation.

In particular there are two types of modest investments that can accomplish this goal. Those investments include certificate of deposits and money markets.

What Are Certificates Of Deposit?

One of the retirement income investment options that an individual has to ensure that their money that is received from retirement sources continues to work for them is by investing in certificates of deposit. Basically, a certificate of deposit is an option provided by various financial institutions.

CD’s or certificates of deposit are purchased by investors and the amount of money invested has a corresponding set of interest rates when the CD’s reach their maturity dates. These CD’s commonly mature in pre-determined time increments from three, six, nine, twelve, two or five year increments. For so long as you do not prematurely withdraw your investment in the certificates of deposit you will be given a set guaranteed interest return on your investment at maturity date. Also, you should note that the longer the period of time you commit your money in the investment the greater the amount of return you will have on that investment.

Like any other investment, there are certain downsides and for certificates of deposit it is that you will need to keep your money in the financial institutions for the duration of the agreed investment period. If you draw out your money before the agreed upon maturity date then their may be penalties incurred.

What Are Money Markets?

Another option that an individual may have that provides a little bit more flexibility in accessing one’s retirement income investment is through a vehicle known as a money market. The money market is like the checking account in which money can be spent utilizing a check or using a debit card. However, there are restrictions in regards to the number of times these types of transactions can be accomplished. In addition, in order to open up a money market, often financial institutions require a minimum amount of money that it takes to open a money market.

This type of investment as a form of retirement income investment has a positive component about it and this is that the interest rate at which your money invested is much higher than that of a regular savings account.

You are nearing the age to begin serious considerations for your retirement and estate planning. But are there tools available to help you work through some of the numbers? Yes.

The web is full of free tools and 401(K) or retirement calculators that promise to help you plan for your retirement and sort out your long-term investment needs.

However, each of these tools use different calculation strategies and different assumptions, meaning they all give you varying advice.

To compare the numerous 401(K) calculators out there, we inserted the same numbers, including savings rate, life expectancy and income into three various online and free calculators.

To do so, we inserted the same data about a pretend test subject - a 45-year old man with no spouse or dependents and an annual income of approximately $50,000.

Our subject had a minimal mortgage balance, a savings rate of about 10% and approximately $90,000 saved in a 401(K). He wanted to retire by the time he was 65, live on $50,000 (100% of his pre-retirement income) and he expected to live until the age of 100.

Keep reading to find out what each 401(K) calculator recommended and how they measured up.

Calculator: Ballpark Estimate (URL: choosetosave.org/ballpark)

Ballpark recommended that our test subject needed to save just over 55% of his annual income to retire in 20 years with an annual retirement income of $50,000 per year. Changing the retirement age to 70 and even 75 lowered that rate significantly.

In terms of quality and experience, the site took a little over 9 minutes to complete the questionnaire and calculate the final results. Overall, it was easy to use and lets you include extra income sources like a part-time job or investment returns. The one major drawback is that you can’t fiddle with the numbers or make major adjustments without starting over from the beginning.

The Nationwide’s Retirability Calculator (Online at: nationwide.com/nw/nrri/index.htm?wtgo=retirability)

Nationwide’s retirement calculator tool actually gives you a score based on your readiness for retirement. Our test subject scored 88, a poor ranking when 100 and up should be your overall goal.

The site took just under 8 minutes to input our information and come up with its results. One major feature of Nationwide’s 401(K) tool is that it includes home equity as part of your assets. Considering that most Americans wind up tapping into that equity, it’s more accurate.

Calculator: AARP (URL: aarp.org/money/financial_planning/sessionseven/retirement_planning_calculator.html)

At the moment, our test subject is saving just over $400 in his retirement savings. According to the AARP calculator, that amount needs to increase to $1600 in order to meet his goal of full retirement at 65.

The 401(K) calculator took about 10 minutes to use. Though not as flashy as the other tools on this list, it provided clear and easy-to-understand results that were complimented by a graph and easily editable variables.