While you are still young, you have plenty of opportunities to work and earn money. But you must bear in mind that the inevitable will come. You will reach a certain point when you have to retire from work. The most important question now is “Are you prepared for this moment?” If you have not thought about it, now time to look into the different types of retirement plans to find out which one is best for you.
In the U.S., there is a government sponsored plan called Social Security. It is mandatory that a certain percentage of your pay be put aside and invested by the government on your behalf. In return, you get a guaranteed income at retirement age. The only downside is that this usually does not add up to very much money and there is some doubt that this system will even be able to pay out for future generations.
Seeing as you can’t really count on the government plan, you’d be wise to invest in a retirement plan of your own. Towards this end, many people purchase an Individual Retirement Account (IRA) which comes in 5 types. If you wish, you can invest in the traditional IRA which can allow you to contribute a certain amount annually. The good thing about this is that income tax will be reduced whenever you deposit. The second type is the Roth IRA. With this plan, you defer tax savings while you are still paying the annual amount. The third type of IRA is called SEP which is also considered traditional. If you are currently self – employed or you own a business, this is ideal for you. A Simple IRA is the fourth type – named as such because any company finds it easier to administer this. Lastly, you may want to opt for the Self – directed IRA. This can provide you with a wider range of investment choices which includes business partnerships and real estate.
If you are lucky, you might find that your company has an employer sponsored plan which can be classified as qualified or non qualified. Qualified plans entail defined plans, like that of a pension plan. When an employee retires, he can receive a specific amount, depending on years of service to the company and salary history. In many cases, both the employee an the employer make contributions. Financial gurus advise employees who still have 20 years before they retire to get a qualified plan.
Another employer directed plan is the 401K plan. With this plan, you elect a certain percentage of your paycheck to be invested for you. Sometimes the company will match that contribution or a portion of it. Many 401K plans offer a variety of investment programs that you can choose from.
Profit sharing is another type of employer sponsored funding that can be used for retirement. The contributions will be made by the employer alone and will be based on the current compensation of the employee. Contributions may not necessarily be cash. They can also come in a form of the stocks of the company. This is called the stock bonus plan.
Depending on where you work and how much you make, you will have different options for retirement savings. Some people have better options than others, but one thing is for sure ad that is that everyone should be taking steps to save for retirement as soon as they possibly can.
