Final answer:
To secure enough income for old age, individuals can invest in various financial instruments such as stocks, bonds, and annuities, or take advantage of tax-deferred accounts like 401(k)s. Starting to save money early in life to benefit from compound interest is a key strategy.
Step-by-step explanation:
Saving for Retirement
Ensuring sufficient income for old age is an important aspect of financial planning. There are various private market options for saving for old age, including putting money into savings accounts, investing in property, or purchasing stocks and bonds that can provide dividends and interest, respectively. A popular long-term savings strategy involves annuitizing funds, where one invests money over time to receive a fixed sum annually upon retirement. Options such as a 401(k) offer special tax advantages, encouraging individuals to save through their workplace.
However, starting to save early is crucial to leverage the power of compound interest. For instance, a young individual saving $3,000 at age 25 with an assumed 7% real annual rate of return would yield close to $44,923 after 40 years. These decisions help secure financial stability in retirement, despite the uncertainty of future inflation rates, which can undermine the value of fixed-income investments.