Choosing Retirement Investments

Although your retirement date may still be many years off, it is never too early to start your preparation. Yet, many people may spend more time planning their annual vacations than for their retirement. A retirement strategy that includes a variety of financial instruments, such as tax-favored retirement savings vehicles, annuities, mutual funds¹, and life insurance, may help you maintain your quality of life today and in the future.

Let Your Employer “Work” for You As you begin contemplating your investment strategy, consider a tax-deferred savings plan, such as your employer’s 401(k) plan. The earlier in your career you start participating in an employer-sponsored plan, the longer its advantages have to work for you. You can elect to contribute part of your wages to the plan (with restrictions) and, in some instances, your employer may match your contributions up to a predetermined percentage and subject to a maximum. While no one can guarantee the performance of your savings vehicles, if you take advantage of matching contributions, you automatically increase your principal, sometimes by as much as 50%. Furthermore, contributions to a Retirement Plan may reduce your taxable income if you meet certain requirements as defined by the Puerto Rico Department of Treasury (Departamento de Hacienda de Puerto Rico).

Consider an IRA Another alternative for tax-deferred savings is an Individual Retirement Account (IRA). Opening an IRA account as soon as possible, will enable time and compound interest growth to work on your behalf. You may be eligible for an income tax-deduction depending on your income, participation in an employer-sponsored plan, and the type(s) of IRA you choose.

Annuity Options Annuities, contracts with life insurance companies, offer you another tax-deferred retirement planning opportunity. The earnings on an annuity are subject to income taxation and have the potential to grow tax deferred, just as with a traditional IRA or 401(k) plan. Two popular types of annuities are variable annuities and fixed annuities. With a variable annuity, payments are invested, and future payments to the purchaser are based on the performance of the investment portfolio. Variable annuities may be redeemed for more or less than their original cost. If you die before receiving income from your variable annuity, your beneficiaries are entitled to the net amount invested in the annuity, regardless of the portfolio’s performance. In contrast to a variable annuity, a fixed annuity guarantees regular, fixed payments for a specified period or for life. You generally pay a premium either in a lump sum, or in installments. Guarantees are based on the issuer's claims-paying ability (the insurance company that issues the annuity contract)Early termination of an annuity contract may result in certain surrender charges.

Diversify with Mutual Funds Mutual funds may be another excellent way to take advantage of the knowledge and experience of professional portfolio managers. With equity mutual funds, you are spreading investment risk among various company stocks. In addition to common stock funds, mutual fund investments can be made in money market accounts and bond funds. Money market funds are neither insured nor guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation or any U.S. Government agency. Remember, investment return and principal value of all mutual funds will fluctuate due to market conditions. When shares are redeemed, they may be worth more or less than their original cost. Further, shares may lose value, including the principal invested.

It is often convenient with mutual funds to implement dollar cost averaging (investing a specific amount regularly over a period of time). While it cannot guarantee a profit or protect you from a loss, this method may create a lower cost per share over a long period of time. For the strategy to work, you (as an investor) need to be able to invest through periods of low-price levels. In addition to reinforcing the discipline of regular investing, dollar cost averaging takes the guesswork out of trying to “time the market.” There is no guarantee that dollar cost averaging will result in a lower cost per share The Value of Life Insurance Depending on the type purchased, life insurance may serve multiple functions as you plan for retirement. By using cash-value life insurance, such as whole life insurance or variable life insurance, you have the advantage of a supplemental source of savings during your retirement years that accumulates cash value on a tax-deferred basis. Furthermore, in the event of your death, it provides benefits for your spouse and dependent family members.

Start Early In addition to qualified plans such as 401(k)s and IRAs, annuities, mutual funds, and life insurance may each have a place in your personal retirement plan. Even if you can only save a small amount at the outset, the key is to start early and continue regularly. The more you know about investing for retirement, the more comfortable and secure your future may be.

Copyright © 2015 Liberty Publishing, Inc. All rights reserved Distributed by Financial Media Exchange The information and general descriptions found in this article are designed to help you understand some of the factors you should generally consider when evaluating the appropriateness of any strategy or investment within your retirement plan. Any description included is only for informational and educational purposes and for your independent consideration; it is not to be regarded or viewed as advice or as a suggestion to take (or refrain from taking) any particular action. By providing this information, we assume that you can evaluate this information and the general descriptions found here to exercise your independent judgment. Banco Popular de Puerto Rico, its subsidiaries and/or affiliates are not engaged in rendering legal, accounting or tax advice services. If legal, accounting, or tax advice services are required, you should seek the services of a competent professional. Insurance and investment products are not insured by the FDIC; they are not deposits or obligations of, nor are they guaranteed by Banco Popular, its subsidiaries and/or affiliates. Investment products may lose value. Some insurance products may lose their value.

¹Please read the Prospectus before investing in mutual funds, it is important that you understand the objectives, risks, sales charges, expenses, and management fees that you will be charged, as well as the breakpoint discounts to which you may be entitled. Understanding these charges and breakpoint discounts will assist you in identifying the best investment for your particular needs and may help you reduce the cost of your investment.