We all looking forward to choose a good retirement planning in order to become a happy retired.
With so many option available for us to choose retirement planning, we have to decide which plan suits our needs in our future retirement life.
The best retirement plan is the one that assures you with financial needs and you can rely on it for the rest of your life.
Retirement planning is like a regular saving plan that you build from the first day you start your first job.
It can be with the government, private, unions or any other retirement planning that are available for where you live at.
Different Types of Retirement Planning
- Defined pension plan
- DC (Defined Contribution) pension plan
- Social security benefit retirement planning
- Passive income plan
Defined Pension Plan
Any pension plans that been set by employer to deduct some percentage of the employees’ salary into retirement planning is call defined pension plan.
Most of employers and governments are offering this type of retirement plan to their employees.
The benefits are base on the history of employees’ working and how much he/she made in their production ages.
Also, the age, tenure, salary and percentage of deduction per paycheck should be concern.
Defining and retirement base of the formula are defined in advance for each individual.
DC(Defined Contribution) Pension plan
In this type of retirement planning the individual put some percentage of fixed amount into an account for a specific period of times.
Defined contribution plan in the reality is not a pension plan.
It is an individual saving plan that some employers of banks are offering to individuals.
DC is less secure than defined pension plans.
Retirement planning should be define and fix that people can rely on them in their retirement ages.
Sometimes the employer just stops contribution plan and switches to defined retirement plan.
In many cases if you switch employer or miss a payment, you lose your benefits, all your saving is taxable, you’ll end up having nothing and losing your own money.
However, DC’s are offering more during the retirement time of individuals.
That’s why people are risking their money into that type of retirement planning.
Moreover, it all depends on each individual employer to decide which plan is good for their employees.
Nowadays, in the private sectors more employers are switching to the defined retirement plan which is less secure.
Depositing some fix amount into a register retirement planning account is what employers are offering to their employees.
Some people want to have a fix and secure payment every month and the others want to save more while they can in order to have higher than average people.
Examples of DC retirement planning:
- Profit sharing
- Mutual funds
Most of those retirement plans can’t be cash without any penalties until the age of pension or the age of retirement, which is usually 67.
Social Security Benefit Retirement plans
The social security benefit retirement planning starts as soon as you become a tax payer.
It is almost a retirement plan for all working american residence.
When employee work, there is a percentage of his/her earning goes to the social security retirement taxes.
You should accumulate some points in order to reach the qualified level of social security benefits of retirement planning.
Based on the year you were born, you should earn some points in order to be qualified.
If you were born after 1929, you need a minimum of 40 points which is equal to 10 years of full time job.
Furthermore, you can accumulate more points but it should not be less than 40 in order to be able to get the social security retirement plan.
The Retirement Benefits Amount
Depending on your salary during your career life and the years you work the benefits are various.
If you earned more during your working age, you accumulate higher percentage of the social security taxes points.
As a result your monthly payment will be higher than the others.
How Much you Will Get With Social Security Retirement Planning?
In order to get your full retirement benefits you should be 66 years or older.
However, you can get your retirement start at age 65 if you have a medical reason.
Usually you need about 80% of your before retirement income in order to have a comfortable retirement life.
Definitely you need another source of retirement planning in order to survive since the social security benefit retirement plan is only up to 40% of your income.
Other saving account, mutual funds, investments and life insurance are the recommended additional retirement plannings.
Retirement Benefits for Widows
Widows can collect pensions as of age of 50 or if they are disable to work anymore.
They can switch to their own retirement plan when they rich the age of retirement which is 67.
If the benefit of spouse is higher than the main applicant, they will make it to the maximum benefit that he/she can collect, so at the end it will be the same.
Spouses can collect pension as of age 62.
The spouse who never worked can collect half of benefits only.
Spouse younger than the age of 62 also can collect the pension if he/she is disable , taking care of young children or disable child/children.
Children up to the age of 18 or 19 if they are full time student and not married are entitle to collect pensions.
Former spouse can get the benefit also if the marriage last at least 10 years.
Your divorced spouse should be at the age of 62 or older and not married in order to get the benefit.
Couple should be divorce for at least 2 years before the pension benefit starts.
The benefit that he/she will get doesn’t affect your retirement plan benefits at all.
However, your former spouse can collect benefits before you retire, as long as he/she riches the age of 62 can apply for the benefits.
Working and Getting Benefits at The Same Time
You can work and collect your benefit at the same time but there is a limit and some calculation involves.
For people who are younger than 66, they will deduct $1 from the benefit for each $2 more than the annual limit.
In the age of 66, they will reduce $1 for each $3 of your annual limit.
At the retirement age which is 67, they won’t deduct anything if you work at the same time no matter how much you make.
Living Outside USA While You are Getting Your Social Service Retirement
You can live outside the state and collect your retirement.
However, there are some countries that you can’t collect retirement benefits while living there.
These following countries are;
- North Korea
Employer Responsible for Retirement Planning
In general employers are responsible for retirement planning for their employees.
Employer should bring financial planner in order to chose the best investment plan for their employees.
Plans such as : 401(a), 401(k), 403(b) and so on.
They should describe every options in detail for the employees to be able to invest in the right retirement plan.
Some retirement plannings are collectible after certain years of contributing but some are not promising any pay until the retirement legal age.
Such a pension plan 401(k) doesn’t promises any payment until you reach the retirement age.
Cash and Hybrid Retirement Plan
It is very important to understand the benefits and contributions of retirement planning.
Hybrid retirement plan members are taking two types of contributions:
- Mandatory contribution
- Voluntary contribution
Defined mandatory contribution plans are two types:
Hybrid Contribution 401(a) –Cash Match Plan
- Mandatory contribute of 1% each month to 401(a) account
- Your employer contribute 1% of the mandatory plus 1% of the voluntary contribution
- Employer must match both 1% of mandatory contribution and 1% of the creditable contribution
- Each additional contribution of up to 0.5% will be match to 0.25% of the contribution by your employer
- The maximum match contribution is 2.5%.
- Additional voluntary contribution on a tax deffer plan until you withdraw it or cash your deposit, then it will be taxable.
- The maximum amount of voluntary contribution is 4%.
Understanding of Your Contributions
Benefits of Voluntary Contributions
- Your employer will match it to get the full contribution
- Many investments options are available to choose from
- The investments are gaining components as well
Comparing Voluntary and Mandatory Contributions
ERISA Retirement Planning
Promised employee benefits and monthly, how much your retirement planning monthly payments will be base on the full formula calculated.
Employee retirement income security act that protects the tax payers retirement plans during their working times until their retire age.
It is a federal law in the state for retirement plans but runs with private industry.
You should be just require a certain standards in order to be eligible for ERISA and it’s not your employer who should apply for you.
Erisa retirement planning will allow you to become contributor, at what age to become retire, how long after you stop working can you start collecting, spouse pension benefits.
Self Employee’s Retirement Plans
SEP (Simplified Employee Pension) gives up to twenty five percent of your net income from self employment, which is not including your contributions.
SEP self employee pension or SEP-IRA, is a way that you can put aside some pretax savings for your retirement planning.
The contribution is up to twenty five percent of your net income.
Individual 401(k) is specifically for self-employer without any employees.
Self-employer 401(k) profit-sharing plan:
Allows the self-employer to gain benefits from both as an employee and employer as well.
Solo 401(k) retirement plan:
Is a 401(k) retirement plan for Americans specifically designed for self- employers who doesn’t have any full time employees other than then business owner and their spouse.
A Keogh plan:
Is a tax-deferred retirement planning for individual self-employers and can be either a defined benefit or contribution plan.
As a freelancer you should pay your regular income taxes and self-employer taxes if you earn more than $400 as well.
Therefore, you should file a tax returns if your gross income is more than $400.
A Money Purchase Retirement Planning:
Is similar to profit sharing plan, except that the contributions are a fixed amount rather than being variable.
In this type of plan the employer must make annual contributions for each employee regardless of company’s profit for the year.
The money purchase limit that can be deducted as an annual contribution RPP and DPSP are limited and each year changes.