Why Retirement Investment Is Superior to Your Savings Account
What's your retirement plan? Are you putting your money in a savings account and hoping for the best? Or are you actively investing and growing your wealth? Rest assured: Investing your money is always the better option.
Preparing for the future is an essential aspect of life and planning for retirement is no exception: You'll want to have enough money for retirement so you can stop working and enjoy the rest of your life at the same standard of living as before – only with a lot more free time to do whatever it is you like. That means you'll need enough money to pay for your regular expenses and any additional medical expenses that may come up once you're retired. Now ask yourself: How much money would you need to put into your savings account to make that happen?
The short answer is: You pretty much can't. Even if you spend your days living off half of your income, putting the other half into your retirement account, inflation and taxes will start eating away at it, potentially leaving you with less effective purchasing power than you put in. After all, if you start your account at 30, planning to take advantage of the money at 60, a lot can happen in the meantime. In fact, if you leave your retirement savings in your account, you might end up in a position that's not much better than relying on social security retirement benefits.
Actively Growing Your Wealth Requires Active Investing
The sad truth is that most savings accounts and even specialized retirement accounts don't grow your money at a rate that can outpace inflation. The money in your account will actually lose value over time! That's why investment is by far the superior option when planning for retirement. And there are two options to go about doing so:
- Actively investing and setting the profits aside for retirement
- Investing via an Individual Retirement Account (IRA)
With both of these options, you're actively investing your money to generate returns that flow directly into your retirement account. You can also decide whether to invest in traditional vehicles such as stock market long positions and bonds or alternative investment options like hedge funds or private equity. As with non-retirement investing, putting your money into alternative investment options is riskier, but the returns are typically much more significant, allowing you to outpace inflation and effectively grow your wealth.
Are Annuities a Good Retirement Strategy?
Annuities are another option for retirees, though they may not be the most optimal way to invest your money. Annuities are contracts that require you to pay a certain amount of cash monthly or annually, promising to then pay out a specific sum of money on a regular basis after you've reached a target age. This way, retirement annuities work much like your regular income from when you were still working.
The main problem with annuities is that you're effectively giving your money to a company with the promise that they'll provide you with a regular income when you're older. You don't have any control over where your money is invested, and in many cases, this means that the annuity might not even earn you any interest. Even worse, if you sign an annuity at age 30, designed to pay out a flat monthly sum once you're 60, that lump sum may ultimately be worth much less than when you signed the contract 30 years ago. Due to inflation, you might actually get less value out of the deal than you anticipated. In the worst case, this may mean you won't be able to keep your standard of living, as prices have since increased across the board, while your annuity payouts have remained at the same level throughout the years.
What Is the Best Retirement Strategy?
We at CARL can't tell you what the best strategy for you is, as we don't know the specifics of your financial situation. When planning for retirement, you may want to consult an expert financial advisor who can assess your situation and determine the best course of action for you. However, we can state one thing for sure: In most cases, actively investing your money to create additional returns is the best option.
Before you can do that, you first need to decide whether you prefer to invest using a normal investment account or an IRA. IRAs come in different flavors, from traditional IRAs and Roth IRAs to SIMPLE IRAs and SEP IRAs. Traditional and Roth IRAs are by far the most common of these, and they are the most practical choice for most people. The most important differences between these three choices are:
- Investing without an IRA incurs the usual taxes on investments, but you can technically invest an unlimited amount of money into your retirement. There is neither a maximum contribution nor a required minimum distribution.
- Traditional IRAs allow you to annually contribute up to $6,000 or $7,000 if you're age 50 or older (for 2022) and deduct this sum from your modified adjusted gross income (MAGI). Traditional IRAs are also tax-deferred, which means you don't pay tax on qualified contributions or investment gains until you actually withdraw the money.
- Roth IRAs allow you to contribute up to $6,000 or $7,000 if you're age 50 or older (for 2022), but you need to pay taxes on these contributions. Once that's done, however, all of your investment profits and withdrawals are tax-free. Remember that Roth IRAs are only open for earners under a certain MAGI threshold.
Keeping these three options in mind, you can determine which suits you better based on limitations and tax benefits. What all three options have in common is that you can use the money in your account to make investments. Even better, you're usually allowed to make your own investment decisions, though some firms offering IRA accounts may limit which types of assets you're allowed to invest in.
Should I Save for Retirement?
If you've ever heard Aesop's fable of the Ant and the Grasshopper, you know that saving up for hard times has been an important skill for millennia. If anything, long-term retirement planning has become even more crucial, as people today live longer but may not be able or willing to hold employment in their later years. The only thing that's changed from the time of Aesop's fable is that simply saving up for old age is no longer the best way way to go about planning your retirement, as high inflation and low-interest rates can diminish what you've set aside. You need a long-term investment strategy as part of your retirement plan, and that's exactly where CARL's quants come in.
Whether you're investing with a normal investment account or an IRA, CARL's quants can be an important building block of your investment strategy. With 15%+ targeted returns, our quantitative hedge funds offer significantly greater returns compared to traditional investment vehicles – and they frequently outperform other hedge funds as well. CARL's quants also come with a significantly lower level of risk compared with other hedge funds:
- Since CARL's quants have no lock-up periods, you can react immediately if prefer to use a different investment strategy. You can withdraw your investment on a monthly basis, which makes CARL's quants significantly more liquid than other hedge funds or alternative investment vehicles.
- Our quants only require a minimum of $20,000 to allow you to become an investor. This is significantly lower compared with other hedge funds, and it will enable you to further minimize the risk your retirement income is exposed to. Feel free to take it slow and invest only small sums in our quantitative investment strategies if you wish.
- Thanks to the CARL app, you have immediate access to all important information about your chosen quants, from annualized volatility to historical performance. This makes it significantly easier to determine whether a specific fund fits your retirement investing strategy – and you are able to keep an eye on your investment via your smartphone.
- Retirement Planning With CARL
Retirement planning is crucial in this day and age, as your financial future depends on your ability to grow your wealth instead of simply putting it aside for later. CARL's quants can play an important role in your retirement investment strategy by providing great returns or simply as a means of adding greater levels of diversification to your portfolio. Contact your financial advisor, ask them how you can fit CARL's quants into your plan, and set up your personal CARL account to start investing as soon as possible. Because when it comes to retirement savings, every year counts!