Retirement is always imminent. It comes nearer and nearer as you grow older. The question is, are you ready for your retirement? If you are then what are your plans to live out the remaining days of your life happily and care freely. Some of us do not make up our minds to retire. This can be due to financial, social and family problems. Whatever there may be, one should retire at any appropriate time! This is one the most crucial decision you have to make regarding yourself. So be decisive and choose wisely.
Before planning out retirement plans, one should consider some facts, like; why do I need to do it now? What is your motivational cause for retirement? What plans are available? Finally, what is the right set of plans for you?
Why Do I Need To Do It Now?
People who are at the brink of retirement question themselves, why should I retire now? The mind responds first and explains that person that he is still young and hearty, and there is no need to retire now. Following your mind can leave you financially disrupted. Everyone should make up their minds and look beyond the present, into the future about the day they will sit down, relax and do whatever they want. One struggles throughout one’s life; first at the school, college, and university level and then in the professional field. Life continues to pass through without any break. Therefore, there should be a time when every work- related thing should be kicked aside!
Statistically, in the U.S, the average life expectancy is 78.2 years. Most people retire well before this age, as they should be. Considering this time span as a reference, planning retirement should be taken seriously.
The Most Common Retirement Plans
Though, everyone has different taste and aesthetic preferences, still there are some retirement plans which are frequently followed by people. IRA stands for (Individuals retirement accounts). As the name implies, it is an individual’s account which is associated with storing money for fulfilling one’s retirement schedule. There are several types of IRA.
- Traditional IRA: This type is a tax extended account. The money you store in it is not taxed until you withdraw it. There is also a penalty on early withdrawal, i.e. before the age of 59.5.during the year, the government limits the dollar amount of contributions. The amounts keep on increase beyond the age of 50.
- Roth IRA: This plan was introduced in 1998 as a consequence of Taxpayer Relief Act of 1997. It was named after Senator William V.Ruth Jr. It is more or less similar to the traditional IRA, except that the initial contribution cannot be deduced by taxation and the interest money is also taxable income.
Employer Sponsored Plans
- Defined Benefit Plan (DB): According to this plan, retired people receive an equal amount of money each month after they announce their retirement.
- Defined Contribution Plan (DC): The treaties of this plan suggest that the employee or the employer, or both, are to make equal contributions every month. This money is invested in the company’s stock. The money you receive at retirement depends upon the success ratio of the investments. This type of plan is risky and stands equal to gambling.
- Profit sharing plans: In this type, the employer makes all the required investments. As in common businesses, the employer determine the amount of profit to be shared and that sum becomes the contribution.
- 401(k) Plans: This is one of the most popular retirement plans. It is, basically, an employer- sponsored plan. The contributions are pre-taxed and it is met with by the employer. Both the interest income and employer contributions remain tax deferred until the age of 59.5.
What Is The Best Plan For You?
- Benefits: One of the very first considerations you make is the long term benefits. This is where a trustworthy financial planner comes in handy. A financial planner adds in your numbers and suggest you the best retirement policy.
- Eligibility: Probably, the first step you need to take is to read the eligibility notice of each plan. Not everyone qualifies for every given plan.
- Flexibility: How flexible you want your plan to be depends upon your preference. Every plan can be tailored according to your needs and desires. So stay chill and jot down your range.
- Costs and Taxes: Some plans come with extra money. Extra money is enforced upon the client in the form of taxes paid on maintaining the account. Moreover, if your plan is linked with the company’s stock than your money is at risk!
- Age: The factor of age determines your contributions and possible risks. At an early age of 20’s to 30’s, one can afford to take some risks with their retirement contributions. While, at 50, you should minimize the element of risk and maximize the contributions.
To conclude, one must understand that retirement is the fate of every working men and women. Hence, they should evaluate a retirement plan as soon as possible!