Posts Tagged retirement plan

Get Started for Retirement Planning

Retirement planning is about setting aside money, investing or saving money to obtain a steady income at retirement. Everyone has to retire at some point after their working lives. Hence, you should consider retirement planning. The following are the reasons which convince that retirement planning is essential.

  • Increasing life expectancy
  • Rising inflation
  • Increasing medical costs
  • Rising standard of living

So, start planning for retirement as early as possible, so that you can prepare for your golden years. It enables you to retain financial independence. As the average number of employment years has not been increasing, then how can you depend on someone after your retirement. Even after your employment, you can live the way you like and you can enjoy the same lifestyle which you are used to live before. This can be attained by right planning.

The path to secure retirement is by your regular saving or investing. Get a habit of monthly savings by purchasing products like Systematic Investment Plans introduced by mutual funds, regular premium life insurance policies and recurring deposits offered by banks. Saving or investing early gives more power of compounding your investments. Moreover be sure to make tax-saving investments and avoid the investments that promise impractical returns. This systematical investments lead to a tension free healthy retirement life.

In case if you are currently not in a position to set apart the funds required to invest, then start with whatever is at your disposal. Life insurance pension plans offer huge tax benefits. So, select the right retirement age and get started on retirement planning, which will help you meet your post-retirement requirements. Early retirement planning can help you reduce your financial burden and stress incurred during the post retirement years and help you plan for a healthy and financially secured post retirement life.

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Know About Benefits of Retirement Plan

Retirement plan is about saving money for the future, i.e for life after retirement. These plans are defined in tax terms by the IRS code and are regulated under Employee Retirement Income Security Act, in U.S.A. If you are an employee, company must take care of your retirement, or if you are engaged in a business, then you must take care of your future as businesses are volatile and can change at any moment.

Retirement plans are of two types, defined benefit plan and defined contribution plan. A defined benefit plan comprises or gives a specified monthly benefit at retirement. The benefit in defined benefit plan is determined by the employee’s salary, number of years of employment, age at retirement, number of years of service, etc.

The retirement income mainly depends on the years of service to a particular organization. The longer the time you are associated with the organization, the more you get your monthly income at retirement. There are many methods used to calculate the defined benefit plan, however, the result is a fixed monthly income that the employer is committed to pay the retiree for the rest of his life.
Defined contribution plan does not ensure specific amount after retirement. In this plan, the employer or the employee contribute to the employees individual account. These contributions are generally invested on behalf of the employee in the employee’s account. The employee will ultimately receive the balance, and the value of contribution depends on the changes in the value of the investments.

A Simplified Employee Pension plan (SEP) allows employees to make contributions on a tax-favored basis, when employee owns or sets up an individual retirement accounts (IRAs). Thus many plans contribute to the benefit of the employees after retirement.

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Know about Various Types of Individual Retirement Account

An individual retirement account is a retirement plan account which serves tax advantages in United States for retirement savings.

Individual retirement account was started in 1974 with the authorization of the Employee Retirement Income Security Act (ERISA).

There are different types of IRAs like:

  • Roth IRA: It is named as Roth IRA for its chief legislative sponsor, the late Senator William Roth of Delaware. This is an individual retirement arrangement permitted under the Tax law of the United States. This can invest in generally in common stocks or mutual funds or securities. Its main advantage is tax structure. Within the IRA, all transactions have no tax impact because contributions are made with after tax assets, and withdrawals are generally tax free.
  • Traditional IRA: Contributions are made with pre-tax assets or money is deposited before tax so contributions are often tax-deductible. Within IRA, all transactions and earnings have no tax impact, and withdrawals at retirement are taxed as income. A traditional IRA may be mentioned as a non-deductible IRA or a deductible IRA as its depends on the nature of the contribution.
  • SEP IRA: Simplified Employee Pension Individual Retirement Accounts. Business owners adopt this SEP IRA to offer retirement benefits for business owners and their employees. No need to pay significant costs for self-employed person with no employee. All employees should get same benefits under SEP plan, in case self-employed persons has employees.
  • SIMPLE IRA: Simplified IRA permits employees to set aside money and it is invested for further use. It is a employer-provided tax-advantaged retirement plan in the United States.

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Building Financial Planning

Financial plan is the route map to reach life’s financial goals. And it is typical exercise in establishing long term financial security.

People have many types of financial priorities in different states of their lives, a balanced financial plan is like a 3 legged stool when if not concerning of current life stage and age. If we remove one of the leg the stool shakes and may crash.

In financial planning the most important aspects can be put in to 3 categories like
(1)Budgeting and saving, (2) Investing, (3) Retirement and estate planning, which are three legs of financial planning.

Budgeting and saving:
Budget is a guideline to help everyone in spending money on the things that may be most important to everyone. And it is needed for proper money management. And It is a tool to increase consciousness regarding spending money. There are some changes in savings but without saving plan there will be no enough money to meet future long term monetary or financial goals.

Investing:
Sometimes amount of available time decides the type of investment to earn the money. Stocks consider long term investments. And it is the best for five years longer investing in stocks or stock mutual funds. You may decrease your return by drawing in when the stock’s price is down, when if you need money sooner than that.

Retirement and Estate planning:
Retirement means period of life from when you can no longer work. Though people choose to retire later of earlier due to financial of personal reasons, 65 years of age is conserved as standard age of retirement. Any combination of sources like a retirement plan such as 401(k) plan, a pension plan, saving account and social security are financed by individuals as per their needs after retirement.

Estate planning involves how an individual wants his assets allocated after his death. Individuals get the names of people whom they want to give their assets and their aspirations will be legally binding.

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