Young as you are, preparing for retirement should be in your agenda the moment you get a job. If your company is not contributing towards your retirement, get a realistic plan. Review your finances and get going. The thought that you have your retirement in the works gives you confidence to face the future.
What is a Retirement Plan?
A retirement plan is a setup that provides people income or a pension after years of hard work or retirement security. In the UK, this plan is called a pension scheme and in Australia, a superannuation plan. There are different arrangements for a retirement plan to suit your financial circumstance. Younger job entrants can enjoy a low flat rate, while older workers may pay a higher rate.
You enjoy tax benefits if you’re paying for your monthly contributions to your pension plan. If your employer is contributing towards your plan, he can avail of tax breaks. The US government requires a permanent retirement plan to prevent the abuse of tax benefits and the moment payments are not continued, the government will disqualify the plan. Your or your employer will have tax problems later.
It may seem that retirement is a long way off especially, if you’re in your twenties. Your interests may range from going out with friends, collecting Colibri lighters, NFL banners, shopping for trendy clothes, and buying a car. A retirement plan seems out of place in your scheme of things.
But eventually, that day of reckoning will come and you’ll be left out in the cold, wondering how to survive on nothing. A retirement plan will eliminate those worries and you can enjoy your investment – have vacations and fun – which you rightfully deserve.
On the day you retire, a pension check will arrive at your doorstep every month. The higher the premium you’ve paid, the higher your monthly pension. If you’re getting a plan project into future possibilities – prices of commodities may increase – and your monthly pension may not be enough to cover all your needs.
Types of Pension Plans
Ask your employer about retirement contributions. You might be told that a fixed amount is deducted from your pay each month. This is the Individual Retirement Account or IRA-based plan.
Your employer may or may not contribute towards the fund. Whatever the case, always follow your retirement payments and keep records of all the deductions towards the plan. In case you get another job, you can always follow through with the payment.
The 401(k) plan requires the company to match their employees’ contributions and these contributions are not subjected to federal and state income taxes. The moment the fund is withdrawn, the taxes come rolling in. It’s like saving money in a pre-tax basis.
If your employer uses the 401(K) Plan, you’ll be given the choice where to invest your contributions and how much you will contribute. The Keough Plan is the option for those self-employed. The qualified and profit-sharing plans are the type of plans those working in the private sector can avail.
Thinking Ahead
So you say you’re still in your 20s and retirement is a long way off. That’s right. But wise young people see the benefits of having a retirement plan. Everybody wants to retire at 40 and enjoy life while they are still able. The 20s is the best time to plan ahead.