About Retirement Plans
- Traditionally, personal savings, employee-sponsored retirement plans and Social Security benefits are considered the basic elements of a retirement plan. The three sources of post-retirement money combined together should allow retirees to pay all of their expenses if established early enough and adequately grown. Individuals who have the means or desire a larger store of retirement funds often pursue strategies that include buying property and investing in financial products and plans offered by banks, insurance companies and brokerage firms. Investment options include stocks, mutual funds and annuities.
- A retirement plan is essentially any course of action a worker pursues to save money so that she can meet her financial obligations once she has retired. As a result of that broad definition with only one required component (saving), there are many types of retirement plans, based on who offers them and what form they take.
Employer retirement plans generally fall into two categories, both classified as Qualified Retirement Plans because they adhere to the conditions of the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act of 1974 (ERISA). Respecting IRC and ERISA requirements makes such plans eligible for four tax benefits not available to Non-qualified Retirement Plans that, for example, exclude certain types of participants.
Defined Benefit Plans are funded by the employer and promise participating employees they will receive a set payment upon retirement. Defined Contribution Plans make no such promise, yet they allow participating employees to determine how much to contribute and where their contributions will be invested. The performance of the investment products chosen and the amount of money contributed then determines future retirement payments.
Other popular approaches to retirement planning include investment in savings plans like Individual Retirement Arrangements (IRAs), 401(k) Plans, and Keogh Plans. - In addition to permitting a retiree to live a comfortable, healthy and satisfying lifestyle after he leaves the labor force, a successful retirement plan provides the peace of mind of knowing that funeral expenses will be taken care of after his death and that assets may even remain for heirs and beneficiaries.
- It is crucial for all adults to plan for their retirement by starting to save far in advance of their sixty-fifth birthday. If that is not possible, however, workers can still make significant progress by saving larger amounts of money or pursuing more aggressive investment strategies beginning at an older age.
- Whether you start planning for retirement early or late, always remain aware of the many unscrupulous people who seek to steal workers' retirement savings through predatory, illegal investment plans.
