Paying for retirement can cause anxiety in many, even those who are financially well-off. With the high cost of living in today’s fast-paced society, it’s likely that rent, utilities, and living expenses will only continue to rise. For this reason, it’s important to do research and understand all of the retirement plan options available.
The most common way to finance retirement is a pension, which is established during a person’s career. Money is deducted from each paycheck and put in an account that individuals can cash out when they retire. However, pensions are no longer as profitable as they once were, and many people have to explore alternatives because their pension will not give them enough money to live comfortably after they retire.
Setting up a pension plan is not a bad idea, and everyone with the opportunity to put money away toward retirement in a pension account should consider it in addition to any supplemental options.
Also known as defined contribution plans, 401k accounts come in four variations:
Each of these plans offers different contribution levels and are offered by most employers. For every amount a person contributes, the employer also contributes a set amount. These rates will vary among employers, but it serves as a great opportunity to earn more money toward retirement without having to pay extra each month. The added interest can easily amass to thousands in several years.
Individual Retirement Account (IRA)
IRA accounts can be traditional, Roth, spousal, or self-employed. These accounts offer individuals the greatest level of flexibility and control over how their money is distributed. A Roth IRA is tax-free while a traditional IRA offers both tax deductions and deferrals.
Spousal IRAs allow unemployed spouses to set up an individual retirement account and have their partner contribute toward it. However, for this to work, couples must file taxes jointly.
Because of their versatility, many people consider IRAs to be some of the best retirement plans.
Guaranteed Income Annuities
Individuals can choose to set up GIAs prior to retirement, upon which they will trade in their lump sum for monthly payments. This can take the burden off of worrying about how the money will be managed in retirement, as each monthly payment will be similar to earning a paycheck. For some, the paycheck may be more than they earned while they still worked. For others, it will be less, but its consistency can offer reassurance.
People over 50 can begin making payments toward their GIA amount which will increase their total monthly payout for the rest of their lives.