One of the primary reasons for investments by domestic investors is to have an additional source of income. This additional source attains immense importance when individuals retire from their work and they no longer have their regular source of income working for them. People invest in their present to make their future secure. In the twilight of life, these investments provide that much needed ray of hope that an individual needs. Retirement investments are mandatory for every individual and every rational individual is expected to make such arrangements for the future.

Instruments of Retirement Investments

As mentioned above, retirement investments are arrangements made by an investor have a source of income in their post-retirement years. To ensure that these income sources are powerful enough and provide the necessary and expected returns, there are certain instruments of retirement investments. Some of the instruments of retirement investments are as follows:

1) Employment-sponsored Plans: Every business firm has a retirement plan for its employees. Usually, in such plans some amount is deducted directly from the salary of the employee. The amount is determined by a rate that may be decided by the government or by the company itself. The company has a separate account for collecting these deductions. When the employee retires he starts receiving a pension or gets the entire amount that has been collected by the salary deductions. These plans are usually exempted from tax considerations.

2) Mutual Funds: Mutual funds refer to an investment instrument that includes collection of money from the investors and investing it in various stocks, bonds, securities and money market instruments. A mutual fund company invests money on behalf of the investors. The advantage is that since it collects money from several investors it can make greater investments that individual investors cannot undertake. With larger investments, the returns received are also greater and investors can enjoy higher returns, which they would not have enjoyed otherwise.

3) Stocks: Business organizations float a particular number of shares in the stock market. Shares refer to a unit of account of stocks, mutual funds and bonds. Companies do this to raise money for further investments and growth. When individuals purchase these shares they get the ownership of the company equivalent to the value of the shares. This allows the investor to participate in company decisions and also to share the profits of the company. Hence, as the company expands and makes higher profits, the value of shares and their returns continue to grow. This certainly benefits the stockholders. Hence even after they retire they would keep on getting the returns in the form of dividends.

4) Bonds: Bonds are basically debt instruments that are used by commercial corporations to raise money for company expansion and growth. Through the bonds companies or even government can raise money in order to undertake particularly larger projects. When an investor purchases bonds, he is actually giving a debt to the issuer of the bonds. At the maturity, the investor would get his principal amount back along with a pre-specified rate of interest.

5) Certificate of Deposit: These are instruments of time deposits that an investor can make. The investors can have deposits of up to five years. When investors make this deposit they are actually putting away a part of their income for future use. They can deposit them with banks, financial institutions and credit unions. At the time of maturity, investors get their principal amount back along with additional rate of interest. Investors can make these deposits while they are in service so that they can be used during their post-retirement years.

6) Real Estate: Investing in real estate can be one of the best ways of investments, especially for retirement period. Property prices always continue to rise and individuals would get extremely good returns if they give their properties on rent. This income would be good enough to support them in their retirement period.

Tips for Retirement Investments

It is important that investors have a specific plan in mind while investing in retirement plans. There are certain basic principles that investors must follow while investing in retirement plans. The important tips or steps in retirement investments are as follows:

1) Asset allocation is fundamental in making any investments. This implies that the investor must divide their investments in such a way that they maximize their returns and minimize their risks. They must divide their investments considering their needs and comforts during the retirement years.

2) It is important that investors strike the right balance between long term and short-term investments. Long-term investments are relatively risk-free as compared to short-term securities as they are subject to effects of market fluctuations.

3) Investors must invest in relatively risky investment instruments when they are young and have many years for retirement. However, as they come closer to their retirement they must transfer to low-risk and secure investment instruments. This blend helps the investor in proper asset conservation.

4) It is necessary that the investor begin early in order to save a greater amount for their future. They can afford to take certain risks that can provide very significant returns.

5) At a young age investors have a greater risk-tolerance level. Hence, the investors can endure even few losses easily.

Significance of Retirement Investments

It is an understatement to say that retirement investments are absolutely mandatory. Especially, in current times that are characterized by unpredictable developments and events securing the future is a must. Hence, it is essential that individuals start investing right from the time they start working. The retirement investments provide that much-needed source of income when individuals have no other source to depend upon. The perspective of retirement investments has changed with the changing corporate structure. Firms are involved in a fierce competition between themselves in order to attract the best manpower. To attract the best professionals retirement investment schemes are formulated with a view to provide the best returns to them after they retire from the job. When companies have excellent retirement investment schemes, it helps in building trust between the employers and the employees. Another important gain of retirement investments is that they provide tax benefits to the investors, which is very necessary considering the rising tax constraints.

All these factors point out the fact that retirement investments play a crucial role in the life of an individual. These instruments in fact determine the way an individual would lead his life in the future.