It has never been more urgent to plan for retirement. The number and types of funds, annuities, and IRA’s available to individuals has increased dramatically in recent years and tax laws are constantly changing. Proper planning will help to ensure you are financially able to retire when you are ready to do so. A trusted and experienced attorney knowledgeable in retirement planning will listen to your specific goals and counsel you on your options. Together with your attorney you can begin formulating a retirement plan that works for you.
Retirement plans vary greatly depending on whether you are self-employed or whether you work for someone else. In all of these cases the people who are the most successful with their retirement plans begin the process of planning and investing in their retirement plans early and are committed to regularly contributing to their retirement accounts.
The most common private retirement plans are the IRA and 401(k). Both of these plans are popular because they allow investors to contribute pre-tax money into the plans. This reduces the investor’s tax liability and decreases their taxable income which allows the investor to save more money over the long term. IRA’s have several benefits. Contributions to an IRA are tax deductible, earnings are not taxed, anyone with earned income can open and contribute to an IRA account, and money invested in an IRA account can be invested in mutual funds, stocks, or other securities. A 401(k) plan is an employer sponsored retirement plan. A portion of the employee’s wages are deferred into the account and the employee is able to select from a variety of investment options. Some companies even match the employee’s contributions. The contributions are not taxed and gains from investments in the 401(k) account are not taxed as capital gains. The money is taxed when it is withdrawn but since your taxable income at retirement is much lower than when you are earning a salary working your tax liability is much lower.
Some employers offer pension plans, the equivalent of a salary after you retire. With pension plans your employer is required to contribute regularly to make sure that there is enough money in the account for when it is time for you to retire. Pension plans are becoming more infrequent but are still common for public servants and state and federal employees. The amount of your pension will be determined by your employer based on your salary, age, and how long you have worked for the company. Some retirement plans such as 401(k) plans and pensions are administered by the employer or an organization associated with the employer. In this case the employer must comply with ERISA standards. Your employer must provide you with information about your plan and your employer’s administration of the plan.
It is never too early or too late to begin preparing for your retirement. The first step in good retirement planning is to consult with a trusted and experienced attorney who specializes in employment law and/or retirement planning. Your attorney can discuss your particular employment situation and then counsel you on your options and which option is best suited to help you reach your retirement goals.