Sizzlin’ Summer Series: PART 3

What does Summer remind you of? Maybe it’s the feeling of jumping into a cool pool after a day in the summer heat; or maybe it’s the sound of the ice cream truck as you are bolting out the door with whatever change you could get your hands on. From lazy days in air conditioning to random road trips and more; summer is full of memories, and more importantly, choices.

In Part 3 and the final installation of ‘SIZZLIN SUMMER SERIES’, we will go into the top 3 financial choices you should research before making a decision:

  1. 401(K) and 401(k) Roth:

Up until recent, most companies would only offer a traditional 401(k) to employees; however, a Roth 401(k) has become a regular option as well. The difference comes down to one simple, yet complex word: taxes. In short, a traditional 401(k) is taxed when you pull the money out when you retire. Opposite of traditional; a Roth 401(k) is taxed now, so you don’t have to pay Uncle Sam when you retire. So which one is best? It all depends on your tax bracket and current tax rate. For instance, tax rates are the lowest they have ever been in the last 100 years, so it would make sense to rollover to a Roth 401(k).

Key Point: A 401(k) is a vital part to any retirement portfolio. When looking at the 2 types, consider your current tax bracket, how your income will change in the coming years, and tax rate predictions.

  1. Variable Annuity and Fixed Index Annuity:

In short, an annuity is a fixed sum of money paid to someone, typically for the rest of their life on a annual basis. While guaranteed income is a great addition to any retirement plan, its crucial to know the two types of annuities and how they differ. A Fixed Index Annuity (FIA) typically provides a set amount of money annually in exchange for a lump purchase payment. An FIA is the safest annuity type as it is offers no market downturn and a guaranteed rate of interest. On the contrary, a Variable Annuity provides irregular payments based on investment funds designed by the insurance company. In addition, directly correlates with the market, so any downside in the market will reflect in a loss in return.

Key Point: An FIA is the most commonly used Annuity type and offers guaranteed upside potential with no downside risk. A Variable Annuity has the opportunity to earn much more return in less time than an FIA, but usually carries an aggressive risk.

  1. Risk and Reward

Learning to ride a bike and creating an investment strategy have one key trait in common, balance. Where as a bike requires hand eye coordination and practice, a proper investment portfolio requires constant attention and updates. This is because life is always changing, from career change, to starting a family, to new bills and more, finances need to say in tune with your current needs, wants, and goals. While someone who is younger with a time horizon of 5+ years may choose a riskier portfolio, another, older couple may choose a safer portfolio with little to no downside risk.

Key Point: A successful investment strategy does not require a balance beam or seesaw to work properly. What it does require is consistent checks and adjustments to make sure your portfolio is in the best spot for your current goals and financial situation.

A financial plan has a lot of moving parts and just like a car, requires upkeep and maintenance to keep things rolling smoothly. Regardless of where you are on your financial journey, chat with a financial professional today to see how you can achieve your retirement goals.

 

Content derived from www.schwab.com,  www.investopedia.com, and www.businessinsider.com

Disclosure: This information is provided as general information and is not intended to be specific financial guidance. Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives.

 

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