Why is retirement planning important?
The fundamental goal of retirement planning is to achieve financial independence in your retirement years and to be able to maintain your current lifestyle after retirement. Daily living expenses, medical expenses and unplanned circumstances should be considered when saving for retirement. If you have any retirement goals, such as traveling, you should plan for that too.
How do you determine your retirement age?
Retirement plans typically define normal retirement (unreduced benefits) as either meeting a specific plan “RULE” or turning age 65; whichever occurs first. Some of these plans may even allow you to draw an early retirement. Early retirement means you have not yet met the plan “RULE” nor turned age 65, thus any drawn benefits will be subject to a penalty based on your early retirement age. For example, if you draw early retirement at age 55 your benefits will be reduced by .05% each month you draw earlier than meeting the plan RULE or turning age 65. Retirement plans have different full retirement ages so it’s best to look into each plan’s rules before determining when you should retire.
A few things to think about when considering your retirement age:
• Do you have enough money for the retirement you want?
• Can you collect distributions from your retirement plan? If you are in a 401K program you are expected to take money out at a certain age.
• Can you collect maximum Social Security?
• What are your current expenses?
• What is the status of your health?
• When does your spouse want to retire?
• Are you confident in your post-work plans?
• Do you still enjoy working?
How do you invest for your retirement?
A good place to start would be to discuss your retirement investment plans with a certified financial planner. Certified Financial Planners hold an expertise in retirement and financial planning.
How much should my retirement income be?
Each person has a different income level where they feel comfortable. To determine what income level is best for you consult a certified financial planner or even online retirement calculators as both can be useful financial planning resources.
What is the difference between a pension/401(k)/IRA?
Pensions are a guaranteed life time benefit whereas a 401K or an IRA may run out if you live a long time.
• A pension plan is a type of retirement plan where an employee adds money into a fund that includes contributions by the employer. The worker’s pension payments are determined by the length of the employee’s working years and the annual income they earned on the job leading up to retirement.
• A 401k is a qualified retirement plan that allows eligible employees of a company to save and invest for their own retirement on a tax deferred basis.
• An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.
How does a pension work?
A pension is a lifetime, monthly benefit based on a formula. Many pension formulas look similar to this: Years of Service X Final Average Salary X a Benefit Multiplier = Single Life Benefit. Often a pension is funded both by you and contributions from your employer. When you do draw your pension, it first depletes funds from your contributions. Once those are gone, you are paid from the general pool of funds for the remainder of your life.
Can retirement benefits be garnished?
It depends. If it is an IRS levy or a court order, then yes. However, in some circumstances, retirement benefits are exempt from liability for debts and are not subject to seizure.