How To Invest | How To Invest When Close To Retirement

First and foremost, keep in mind that health care insurance premiums are continually rising. What's even scarier is that by the time you are eligible for Social Security benefits, they may be drastically decreased or might not even exist anymore. These facts alone should be a catalyst for getting some kind of retirement savings plan started. Whether you are in your early 20's or have entered your 50's, you need to get going with some kind of a plan because you can't turn back the clock and start over again. Here are 3 steps you can take.

Step #1: Educate yourself about compounding interest and how to utilize it - many financial planners will tell you that compounding interest is one of the best ways to save money and invest it when close to retirement. Here's an example to explain why compounding interest is a powerful way to save towards retirement. If you could save $2,000 every year for 30 years at 10% interest, that $60,000 would turn into $400,000 at the end of that 30-year period.

Step #2: Whenever you have the chance to start up an employer 401(k) plan, you should take advantage of that opportunity - the benefit to an employer-sanctioned 401(k) plan is that you are able to invest some of your wages in numerous bonds, money market funds, mutual funds, and stocks. Many of the larger companies today will match your 401(k) deduction penny for penny. For example if you contribute 3% of your earnings to your 401(k) account, your employee will add that amount to your contribution. It is also recommended that you should take advantage of any matching bonuses that are offered.

Step #3: When you are younger, you can make riskier investments - you will have extra years ahead of you to try and recoup your losses in safer investments. However, if you are older, you need to minimize as much risk as possible and invest in something safer. As an example of what we are saying, when you are younger you can pursue investments that are higher risk types.

If these investments decrease in value, you will have more time to rebuild your retirement savings. If you are nearing retirement and have somewhat of a nest egg built up, choose those financial and investment vehicles that are rated as being moderate to low risk. The last thing you need is to lose any of your retirement savings when you are that close to retiring and stop working completely.