5 Things to Know When Planning For Your Retirement
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Planning your retirement can be overwhelming, but it’s an essential facet of achieving financial stability over the long term. As you age, your earning potential decreases, and proper retirement planning allows you to maintain your lifestyle and cover your regular expenses. This is especially important for older generations that don’t have family or friends to lean on, cannot survive on government assistance, or continue working.
All of the factors mentioned above are reason enough to start thinking about your retirement early and evaluating your options. In turn, you’ll benefit from maximized savings in addition to financial stability when you finally reach retirement. Here are five things to know when planning your retirement:
1. The Difference Between IRAs, 401(k)s & Pensions
The primary difference between 401(k)s, IRAs, and pensions is that a 401(k) is a retirement plan offered through your employer, an IRA is an individual retirement account through a broker or bank, and a pension is a retirement account that only your employer contributes to. All of these forms of retirement have their benefits and limits, so you must choose something that will suit your financial needs in the long run.
- 401(k): A 401(1)k is a great option if your employer offers you a company match. In this case, you’re encouraged to deposit the maximum contribution amount, which today stands at $22,500 for those under 50 and $30,000 for those 50 years and older. Typically, most employers offer a 3% match, meaning if your salary is $100,000 and your employer matches the entire 3%, you’ll get $3,000 for your retirement funds. For those with multiple 401(k)s from various employers, sites like MeetBeagle will help you find hidden 401(k)s while helping reduce fees and regain your lost retirement funds.
- IRA: An Individual Retirement Account refers to retirement accounts that are not connected to any employer, and can be set up at a bank. IRAs allow for benefits like tax-free growth and the ability to roll over money from other retirement plans into your account. However, you should note that not all IRAs are created equal. The traditional IRA allows you to make deductions on your taxes for your contribution in addition to growing your earnings tax-deferred. In contrast, a Roth IRA will enable you to make contributions to your retirement after taxes and withdraw funds at any time without penalty.
- Pensions: While 401(k)s and pensions are similar in that your employer sponsors them, pensions are considered a “defined-benefit plan,” meaning you will be paid out a specified amount upon your retirement. Pensions are most often available to local and state government workers, and they are managed by an investment professional hired by your company. While you don’t get any control over the investment, you’re promised regular monthly payouts for the rest of your life. The amount is often determined by the number of years worked, your final salary, and a percentage multiplier that usually hovers around 2%.
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Don’t forget to look into any vesting requirements with a new job. Some employers implement a vesting period, meaning you wouldn’t get the full benefits or full retirement match until a certain amount of time passes. There are many different ways this is handled, so it’s important to look in advance to see how yours works.
2. You Have to Wait Until You're a Certain Age to Withdraw Your Retirement Tax-Free
Retirement funds are usually available for withdrawal once you reach 59 ½. If you withdraw these funds from an IRA or 401(k) before that age, you may have to pay a 10% penalty in addition to taxation on the income. For pensions, it’s generally not possible to withdraw from your accounts until you’re 55.
There are some particular circumstances where you could pull from your retirement, such as unforeseen financial hardship like medical expenses, avoiding foreclosure, disabilities, and even death if there is a beneficiary for the funds. However, there are also other exceptions, including paying for college, home repairs, and adoption.
3. How Vesting Works
Vesting, also referred to as vesting schedules, offers employees incentives like stock options or retirement funds once they’ve reached a specified employment term with their company. This is an especially attractive option for employees who aim to stay with the company longer because, as each year passes, they own a higher percentage of their retirement savings account. Once they’ve reached 100%, their employer cannot forfeit those funds. Any amounts that aren’t vested, for example, if you lose your job, those funds are forfeited when you obtain your retirement account balance.
Vesting has different requirements according to employer contributions and the specific retirement plans they offer. For 401(k) plans, there are a variety of vesting schedules that can vary from immediate vesting to 100% after a certain number of years in service. IRAs, on the other hand, are less flexible, as they require 100% of contributions to be vested. However, what it boils down to for both vesting options is that you must be 100% vested come the time for plan termination or retirement.
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4. What Happens to Your Retirement Funds if You Lose Your Job
In the event of job loss, whether it’s on your own accord or not, you don’t necessarily have to say goodbye to your retirement funds along with it. In fact, the money in your 401(k) can be cashed out or rolled into an IRA, though both have certain tax implications for doing so. Frequently, however, retirement funds are left in the 401(k) account they were started in with an old employer, where they can still accrue funds over the years and be available to you come time for retirement. Those who do not obtain funds from previous employers risk losing a substantial amount of their retirement contribution.
5. Don’t Lose Out on Any 401ks
When you lose track of a retirement account, you risk losing hundreds, if not thousands, in retirement. Fortunately, the Meatbeagle.com platform has emerged as a solution for helping retirees obtain their hard-earned funds from old 401(k) and IRA accounts while finding all the hidden fees that are eating away at your retirement savings. Enabling you to narrow your old 401(k)/IRA at 0% net interest in addition to rolling over your funds to one consolidated retirement account, managing your retirement funds is straightforward with MeetBeagle and definitely a worthwhile consideration for building your retirement savings.
