Start early and use tax sheltered accounts:
Utilize retirement accounts that have
tax advantages first. The type of account depends on your situation, whether it's a
traditional IRA, SEP-IRA, 401k, etc. After the tax sheltered accounts are used,
put extra money into an after tax account. Put the most tax efficient investments
into the taxable account and the least efficient into the sheltered account. The dividends of
certain investments, like REITS, are taxed as ordinary income, whereas most domestic
stocks are taxed less as qualified dividends.
does a good job of explaining the difference.
What should I invest in?
Index funds from Vanguard are best for the average investor.
You could simply choose a Vanguard retirement target fund and invest in that over time. These
funds hold a mixture of US and international stocks and bonds that become more conservative as
you approach your retirement year. The
3 fund portfolio
is also a good option.
: Make sure that you have health insurance. Health care bills
can be outrageous without insurance. Also, look into other forms of insurance that you might
need, such as life, long term care, an umbrella policy, etc. This depends on the person and
: The biggest challenge with retirement planning is the
unknown. Most people assume that what happened in the past will happen in the future.
However, a quick look to the past or other countries can show what happens with hyper inflation
or political instability. Even a small decrease in expected investment returns can have a
huge impact on retirement income. For the average person, the best way to handle the unknown
is to limit the things that can be controlled; taxes and investment fees, then hope for the best.