Enjoying your golden years: Saving for the future

Part of the American Dream revolves around retiring on one's own terms. The key method to making this happen is through prudent financial practices and methodical plans that allow people to put money aside, so that it can bear interest. The interest rates and growth potential garnered by stocks, mutual funds, IRA accounts and 401(k) far surpass the return made possible by routine bank accounts. People serious about retiring should study each plan and apply them, so that they can put together a sizable nest egg whenever they deem it necessary to stop working.

A stock is the most common form of long-term investment. At their core, stocks are shares of ownership in a company that are made available for the public. Companies that deal shares of stocks are called publically traded companies. Otherwise, employees are often treated to internal stock options as part of their benefits package. People, from staunch professional investors to everyday Joe's, trade on the stock market, which opens and closes for business each day. The major stock exchanges include the NYSE and NASDAQ in the United States and the Tokyo Stock Exchange in Japan. In terms of general strategy, people purchase shares of stocks at a low price, in hopes of watching them grow and maximize profits as the company's value increases. Today's investor can purchase stocks with the click of a mouse, rather than sitting down in person with a stockbroker or placing a phone call.

Mutual funds are a long-term investment comprised of numerous stocks and bonds. Rather than putting all eggs in one basket and investing in one stock, mutual fund investors get to invest in a large pool of stocks. Mutual fund managers, or a team of mutual fund managers, use their expertise to choose different amounts to invest. Index funds aren't managed by anyone, and are set up to mirror the market itself. For this reason, many regard index mutual funds as a safer option for long-term growth, while managed funds have more potential for growth, at a greater risk. People can purchase mutual funds via the same outlets they purchase stocks.

Unlike stocks and mutual funds, 401(k) accounts are set up specifically for retirement. Because of this, the contributions placed into these accounts are tax deferred, giving retirement hopefuls more reason to invest. They operate similar to mutual funds, in that users are investing in a large pool of stocks and bonds. These plans are offered by employers, who often match an employee's contributions. People who choose to withdraw funds before reaching retirement age will receive a stiff tax penalty. However, people have the freedom to withdraw funds free of penalty for certain reasons, including the use of funds toward a home down payment.

IRA's operate in the same vein as 401(k) accounts, but are purchased on an individual basis, rather than through an employer, hence the name Individual Retirement Account. People purchase IRA's due to the large long-term savings capability, and the tax breaks that come with them. Unlike 401(k) plans, investors don't have to worry about the same tax penalties they'd otherwise be subject to. The common trend for many people once they leave a company is to roll their employer sponsored 401(k) account into an IRA, in order to keep investing.

No matter which route a person chooses, the key is to have a plan. Whether someone's body breaks down, mind isn't as sharp or they simply don't want to work the rest of their life, this is only made possible through careful planning. A wealth of resources are available to someone interested in retirement planning, either online, in books stores and libraries or through a financial advisor. Planning and taking action are half the battle and will allow for a peaceful retirement.

For more information on various retirement plans and philosophies, visit these resources:

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