Financial instruments for your retirement

Many people may spend more time planning their annual vacations than their retirement future. Although your retirement date may still be many years off, it is never too early to start preparing. A retirement strategy that includes various financial instruments, such as tax-favored retirement savings vehicles, annuities, mutual funds, 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 will work for you. You can elect to contribute part of your wages to the plan (with restrictions). 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. Furthermore, contributions to a 401(k) plan may reduce your taxable income if you meet certain requirements as defined by the Puerto Rico Treasury Department. Consider an IRA Another alternative for tax-deferred savings is an Individual Retirement Account (IRA). By opening an IRA account as soon as possible, you will enable time and compound interest growth to work on your behalf. Depending on the type(s) of IRA you choose, you may be eligible for an income tax deduction. The maximum contribution is $5,000. Annuity Options Annuities, contracts with life insurance companies, offer you another tax-deferred retirement planning opportunity. The earnings on an annuity have the potential to grow tax-deferred, just as with a traditional IRA or 401(k) plan. Withdrawals, prior to a certain age may result in a tax penalty, as well as being subject to income tax. 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 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 and guarantees are based on the paying ability of the issuer. 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 professional portfolio managers’ knowledge and experience. With mutual funds you are spreading investment among different companies and issuers to reduce specific risks. Stock mutual funds lets you invest in the stock of a variety of companies through one mutual fund. In addition to common stock funds, mutual fund investments can be made to money market accounts and bond funds. As with stock funds, money market and bond funds spread investment among different issuers reducing specific risks. Money market funds are neither insured nor guaranteed by the U.S. government. 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. 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 you a profit or protect you from a loss, this method may create a lower cost per share over a long period. 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 price per share. The Value of Life Insurance Life insurance, depending on the type purchased, 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, it provides benefits for your spouse and dependent family members in the event of your death. 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 strategy. Even if you can only save a small amount initially, the key is to start early and continue on a regular basis. The more you know about investing for your retirement years, the more comfortable and secure your future may be.   The information provided is for educational purposes and for your independent consideration. This information does not contain, constitute or provide individual tax, financial, or investment advice. This material should not be considered as a recommendation of any particular security, strategy or investment product or service. Particular investment or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. Readers are urged to seek professional advice with respect to their specific financial, legal, tax, and investment matters.  Investment products are not insured by the FDIC, are not deposits or obligations of and are not guaranteed by Banco Popular de Puerto Rico or its subsidiaries or affiliates and may lose value. Copyright © 2015 Liberty Publishing, Inc. All rights reserved. Distributed by Financial Media Exchange.