How Your Retirement Funds Can Earn You an Income
You are looking at your retirement funds and the statement says it's not worth as much as it was a year ago. You wonder whether you'll have any money left by the time you retire. Each year grocery prices have gone up, taxes have gone up, utilities have gone up. Interest on certificates of deposits and money markets are at an all-time low. How will you be able to keep up with the rising cost of living?
In these unstable economic times, it's a good idea to look at your retirement plan and see whether it makes sense to have your mutual funds earn money instead of lose money regardless of how the market is doing. But how do you know which funds will earn you money? Look for the funds which earn you dividends.
What are Dividends?
Simply, a dividend is a portion of earning paid out to shareholders. If you own a mutual fund, you are a shareholder. Some mutual funds focus on companies who are healthy enough to share their earnings by paying a portion of their earnings to the shareholder on a quarterly basis and sometimes on a monthly basis. So how do you find these mutual funds that pay dividends? Let's start with your retirement plan. Look at your retirement fund choices. Let's say one of your choices in your retirement plan is the Franklin Income Fund. The ticker symbol for this mutual fund is FKINX. Go to Morningstar.com, an online resource to check out mutual funds. Type in the ticker symbol in the space next to “Quote” on the top of the page. When you get to the Franklin Income Fund profile under the Quote Tab, you'll find a lot of information. What you are looking for is the mutual fund's yield percentage. Currently it is 7.32%. What this means is that if you invest $1,000, this mutual fund is projected to earn you 7.32% before the mutual fund's annual costs and maintenance expenses. That yield is currently higher than what you'd get in a 12-month Certificate of Deposit. In dollars and cents, that $1,000 investment is projected to give a dividend of $73.20. If you increase your investmetn to $10,000, then the projected dividend for the entire year is $732.00 or a monthly projected dividend of approximately $61.
Look at your other mutual funds and look up their yields. This is an easy way for you to determine which of your retirement funds earn you money and which one's don't. Once you have your list, you want to check one more thing. You want to look at the level of risk each mutual fund has for its level of return. If you go back to Morningstar.com and click on the Ratings & Risk tab you'll find the Morningstar Risk information which can range from Low to High and the Morningstar Return information which also ranges from Low to High. In the case of Franklin Income Fund, the risk for this fund is High and the return is Below Average during a 3-year period. It also gives you the risk and return information for different periods. Use this information along with the yield information to determine your comfort level in investing in a particular fund and how much you are willing to invest. Keep in mind, past performance is no guarantee that the mutual fund will perform in the same way going forward. Talk to a service representative of the mutual fund family to ask your questions about their fund.
Once you have decided on which mutual funds to invest within your retirement plan it's a good idea to look at it at the end of the year and see which funds did well to determine which you'll keep for another year. By monitoring your retirement funds annually you'll have a better understanding of your company's retirement plan.
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