Saving Money the Smart Way

You are going to need income in your retirement years. For many people, social security payments are not enough to cover living expenses. This is why it is important to think about what type of investments you should pursue. Below is a discussion of the three main investment vehicles that retirees can use to attain monthly income.

Bonds

When you buy a bond, you are lending money to the bond issuer. They, in turn, promise to pay you back with interest. This interest is called "the coupon." The amount of interest depends on the type of bond. Generally speaking, the riskier the venture, the more the bond pays. For instance, corporations that do not have a great credit rating issue bonds that pay a very high premium. These are sometimes referred to as junk bonds. They are risky, but they pay a huge amount. Companies that have a stellar rating (AAA on the bond rating scale) pay much less, but they are safe investments.

Besides corporate bonds, you can also invest in government bonds. These include municipal bonds (from individual states) or T-bonds (bonds issued by the United States treasury). These are both safe investments that are backed by the government.

If you decide to pursue bonds, you should look for an E.T.F. (exchange traded fund) that holds bonds. This will allow you to own a small piece of many different bonds. You can pick an E.T.F that is focused on government bonds or corporate bonds. You purchase shares in the E.T.F. and the people managing the fund decide which bonds to buy and sell. It leaves you free to enjoy your retirement.

Stocks

The only types of stocks that you should consider for retirement are blue chip stocks that pay a dividend. Blue chip stocks belong to a category of company that is relatively safe to own. They are the biggest companies in the world and are much more resistant to market swings than small capitalization stocks.

A good place to search would be the list of "dividend aristocrats." These are stocks that have raised their dividend payout every year for the last twenty-five years.

Keep in mind that even if you purchase a blue chip stock, the market could crash and you would lose a significant amount of money.

Annuities

Annuities are financial products designed to guarantee income for life. They are for people who don't want to gamble on their retirement. They way it works is quite simple. You purchase an annuity from a company and they pay out a monthly amount.

There are two types of annuities: fixed and variable. Fixed annuities payout a set amount depending on how much you put into the annuity and your age. Variable annuities pay out depending upon the value of the company's current holdings. Individuals who want a safe, secure, and guaranteed payout should choose a fixed annuity. For more information about annuities, visit Fogel Capital Management, Inc.