From the time you receive your first dollar in childhood to filling out the new hire paperwork after landing your first job, you most likely have been bombarded with messages about saving for the future. For earlier generations, you worked hard and remained loyal and the payoff was a robust monthly income payment at retirement in the form of social security checks and pension payments. Now such benefits have shifted to become every individual’s responsibility.
While social security and pensions are not yet extinct, later generations doubt that they will have such benefits. In fact, the Social Security Administration has identified a steady drop in pension plans also known as defined benefit programs in favor of defined contribution programs where the amount invested is defined rather than the amount received leaving the risk of what happens in the interim at the feet of employees rather than their employers.
What’s the Alternative?
Whether due to medical issues or societal influence, most people realistically don’t plan to work forever. In fact, the “Golden Years” are coined as such, because the idea is to slow down and enjoy the fruits of your labor later in life. However, unless you’ve planned for your future through retirement savings there won’t be very much “fruit” to enjoy and those later years won’t seem very golden.
Luckily, there are a variety of retirement vehicles at your disposal regardless of your financial situation or where you are on your professional path. And while the responsibility is yours, the government and most employers attempt to make saving for retirement a little bit easier. Review the list below to discover the retirement accounts available to suit any situation.
|401(k), 403(b), 457 plan||An employer-sponsored retirement account where employees make pre-tax contributions and employers provide a matching contribution up to a certain percentage. Contributions and matches are invested in select mutual funds based on risk tolerance and/or future retirement age. Check with your employer and the IRS.gov website for contribution limits. Such accounts are available for traditional employees as well as government, non-profit, healthcare, and education professionals.|
|Individual Retirement |
|A tax -advantage retirement account where investments can grow tax-free until withdrawal usually upon reaching government-determined retirement age, currently 70.5 years of age when an individual’s income tax bracket is typically lower. Depending on the type of IRA, it may be funded with pre-taxed or after-tax dollars. Investments can be in mutual funds, ETFs, and/or individual stocks.|
|Employee Stock Ownership|
|An investment plan that allows employees to invest in their employer’s stock. Due to tax benefits provided to both the employee and the employer and vesting features that employers usually require, ESOPs are considered qualified retirement plans.|
|Annuity||A contract between you and an insurer where the insurer agrees to pay you a lump sum or a series of payments at a later date based on what you put in to purchase the contract and the gains from investing that purchase amount over time. You can purchase the contract with a lump sum payment or by making payments during a specified period. Annuities may also provide a death benefit.|
Many of these plans, such as the various 401K and IRA accounts, allow you to make catch-up contributions if you’re late to the retirement planning party. While this article was just an overview to get you thinking about how to save for retirement, find more specific articles on these types of accounts here on the Smart Finance Tips website.