There are few things as important as your retirement plan, yet many of us don’t put enough time and effort into it as we need to. As you go through your working life you’re going to come across terminologies such as annuity, pension, and retirement fund. But what are they and what value do they have to you? In this article we’ll look at the basics of retirement funds to learn how you can benefit from setting up an account today.
The term retirement fund can be used to describe any number of methods used to fund a retirement account. For instance, the current senior population has pensions – which are basically retirement funds set up by employers
to guarantee their workers a monthly income in retirement. Social Security is another form of retirement fund, but in this case the worker puts money into a fund in the hope that he or she receives at least a return on their investment
at the time of retirement.
Annuities are yet another type of retirement fund in which you deposit a lump sum into a firm that specializes in annuity. This can give you a good return on investment as you are guaranteed an income once every
The last type of retirement fund we’re going to look at is the old 401K. It is an employer-based program in which workers set aside a portion of their income so that they have a financial safety net to fall back on after retirement.
It should be noted that some employers match their workers’ 401K deposit, making it one of the most reliable retirement funds available.
So how do these different types of retirement accounts differ?
Pensions are not as popular as they once were and some workers that once relied on them have been let down following changes to company policy. By comparison, Social Security is somewhat failsafe, provided the Federal
Reserve Bank doesn’t run out of money. But keep in mind that certain demographics that affect social security are changing, and it’s likely that this particular retirement fund won’t be the most reliable in days to come. \
Social Security works fine when the dynamics are perfect – that is everybody that is of working age is contributing to the fund to subsidize retirees.
But as current statistics show, we are rapidly becoming a country of older people, with a growing number of senior citizens living in retirement homes. With the reduction in the number of working people, there are fewer people to fund this kind of retirement plan – so with this in mind, it’s best to think of Social Security as an alternate retirement fund.
Annuities are popular in certain circles, but they tend to be complicated and can have extensive ramifications on you tax plan. It’s a good idea to get professional advice before making any decision on your
Finally, 401Ks have went through a recession not too long ago, and that had a negative effect on the value of existing retirement accounts. In order to improve the quality of our lives in retirement, we need to be proactive in seeking out a retirement fund that is best suited for our income and needs.