Grade 9 Lesson 5: #retirement #planning
Retirement refers to the time in one’s life when s/he chooses to permanently leave the #workforce i.e. stop #working. The traditional retirement age is 65-70 in most countries. As one starts to work and earn, s/he should begin to think about and plan for retirement. #Retirementplanning involves determining retirement #income goals and what's needed to achieve those goals. Retirement planning includes identifying income sources, sizing up #expenses, implementing a #savings program, and managing #assets and #risk.
One should begin to plan for retirement early in one’s career. When you are a 20-year-old, retirement may seem too far into the #future. So, it's understandable, that you may not have a detailed plan for the same. However, you can just start by setting aside some #money every month. The easiest way is to start contributing through an #employersponsored plan if your company offers one. You may also want to consider talking to a professional, such as a #financialplanner who can steer you in the right direction.
In our prior lessons, we talked about #investing in detail. All of that is highly applicable to retirement when you can use your invested money. In this lesson, we will talk about the 3 most common types of retirement plans.
1. Government-based: #Governmentbased retirement plans operate like #insurance. You pay into the plan either via #deductions from your income or post-salary contributions. After a specific amount of time (i.e. a lock-in period) or when you reach a specific age, you will either get a #lumpsum or get regular #payouts to support your lifestyle. An example is the social security benefits program in the #USA, which is a #federal #program that provides retirement benefits to qualified people and their spouses. As mentioned above, the program is an insurance program. Workers pay into the program, through #payroll withholding where they work. Programs like these exist in several countries across the world in some form or another.
2. Employer-based: If you work as an employee in some company, your employer may set up a retirement plan for you. Under such plans or employee #pension schemes, an amount is deposited from both ends - a portion of your salary and an additional amount added by the employer to create retirement benefits for you. The goal here is to give the employee income in retirement. An example is the #401K plan offered by employers in the US. Here, employees contribute by having employers deduct some amount from #grossincome, meaning the money comes from the employee's payroll before income #taxes have been deducted. As a result, the employee's taxable income is reduced by the total amount of contributions for the year and can be reported as a tax deduction for that tax year. No taxes are due until the employee withdraws the money, usually in retirement
3. Insurance-based: Insurance-based plans are post-retirement plans bought directly from a #financial #institution such as an insurance company. They are also known as personal pension plans since there is no involvement of an #employer or a #government body in purchasing the plan. Several options can be offered under such plans. E.g., deferred #annuity #plans (creates a retirement fund by investing a #lumpsum or a #premium which you can only access after a certain period), immediate annuity plans (investing a lump sum, and can withdraw at any time i.e. you do not have to wait), pension plans with/without cover (plans with or without a life insurance cover).
All these retirement plans come with different types of benefits, which you must know and understand. However, a personal or government-based plan is usually suggested. Protecting your future in more ways than one is always beneficial, so analyze your needs and goals and make a well-thought-of decision.
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