Individual Retirement Accounts (IRAs)
An account into which a worker makes contributions up to a certain limit throughout his/her working life, and from which he/she begins to take distributions following retirement. These accounts make tax-deferred, long-term investing available. For a Traditional IRA, you may be able to take a current income tax deduction for your contribution and provide tax-deferred growth of capital. Conversely, Roth IRA contributions are not tax-deductible, but distributions may be income tax free.
Contracts with life insurance companies provide another tax-deferred retirement planning opportunity. An annuity is a financial product designed to pay out a stream of payments to the holder at a later point in time. Annuities are used primarily as a means of securing a steady cash flow for an individual during his or her retirement years. A variable annuity invests premiums in professionally managed sub-accounts and therefore their performance is based on that of the sub-accounts. A fixed annuity guarantees regular, fixed payments for a specified period of time.
Vehicles in which investors pool their assets to provide sufficient capital to spread investment risk among a variety of stocks, bonds, and cash. Mutual funds are an excellent way to take advantage of the knowledge and experience of professional portfolio managers. With mutual funds, it is often beneficial to implement dollar cost averaging (investing a specific amount regularly over a period of time). This method may create a lower cost per share over a long period of time, reinforcing the discipline of regular investing, and taking the guesswork out of "timing the market."