Retirement is supposed to be the time of your life when you get to travel, have fun, and catch up on all the things you have not had the time to do during your lifetime. Retirement suggests fun in exotic places, new experiences, sampling diverse cuisines, and playing golf, tennis, or some other sport.
But, for the people without retirement plans, retirement means something vastly different. When they retire and are subject to Social Security payments and Medicare, many people find they can no longer afford to live in their homes. The dreamed-of vacations to exotic locations get exchanged for a visit to a Goodwill store, and the diverse cuisines are whatever is on sale deeply discounted at their local grocery store.
When should you start a retirement plan?
Most specialists recommend that you begin a retirement plan when you get your first full time paying job. The longer you save, the more time your money has to grow, and even if you quit paying into your plan in your late thirties, by retirement age, you will have socked away a goodly sum to help defray the added costs of retirement.
Even if you start later in life, a retirement plan can still provide you with the funds to make your retirement a more pleasant experience than the one described above. Some financial advisors recommend investing 15% of your annual salary toward retirement. They recommend also that you make prudent investments with your retirement funds and avoid withdrawing money from your account.
What kind of retirement plans are available?
The IRS lists the following retirement plans:
- IRAs (Individual Retirement Accounts) permit you to divert pretax income (with annual limits) into investments that are allowed to grow tax-deferred.
- Roth IRAs are similar to IRAs and they allow you to set aside a specific amount of income after taxes, with earning and withdrawals being tax-free after age 59 ½.
- 401 (k) plans are those established by employers for eligible employees to make contributions from their salaries before or after taxes.
- 403 (b) plans are retirement plans for public schools employees, organizations that are tax-exempt and some ministers.
- SIMPLE IRA Plans, called Savings Incentive Match Plan for Employees Individual Retirement Account, is retirement plan provided by American employers that permits employees to set aside and invest money for retirement.
- SEP Plans are retirement plans established by employers or self-employed persons.
- SARSEP are plans to which you can make salary deferred contributions.
- Payroll deduction IRAs allow employees to pay into an IRA through their employer.
- Profit-Sharing Plans give employees a share in the profits of the employer’s company
- Defined Business Plans are pension plans in which an employee’s pension payments are calculated using their length of service and their pre-retirement salary.
- Money Purchase Plans are defined-contribution plans similar profit-sharing plans, with the contribution amounts being fixed instead of variable.
- ESOPs (Employee Stock Ownership Plans) are employee benefit (ERISA) plans that have a qualified, defined contribution, and that invest mainly in employer’s company stock.
- Governmental plans are for government employees.
- 457 Plans are retirement plans that are nonqualified, tax advantaged deferred-compensation available to governmental and some non-governmental employers.
Once you have read about the plans, you will be ready to contact a qualified financial representative to research what the best plan is for you. Plan now for your retirement so you can enjoy the freedom from work when it arrives.
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