(US law and practice) Although everyone knows it is a sensible idea to have a solid retirement plan, it can become difficult for most people to make a decision about which options are the best. Therefore, you should review the following list before you find yourself in a bad situation when it is time to retirement. By knowing what the potential legal issues and other hurdles are now, you can make an informed choice that will enable you to enjoy your retiree years.
Points to Consider about the Major Retirement Plans
1.) Defined Benefit Plans – Working with one company long enough to receive a pension used to be the goal of most Americans, but there are now many people who question the true value of a defined benefit plan. Not only do these plans deny you the opportunity to directly invest money from each paycheck into a plan like a 401K, but if your company goes out of business you will have no retirement protection at all. In addition to which, your pension will be a set amount until your death, and it will not have any cost of living increases. Therefore, if you are relying on a pension to take care of you after you retire, it is in your best interests to invest in at least one other alternative retirement plan.
2.) Defined Contribution Plans – Most commonly known as a 401K, a defined contribution plan requires the employee to make regular contributions into their retirement fund. The money is then invested on their behalf with the intention of making a profit. When the stock market is doing well, this can create a lot of extra money. Unfortunately, difficult economic times can actually leave an employee with less money at the end of the year than what they have contributed. This makes a 401K a risky proposition right now, but in the long run, they will probably become a viable option again.
3.) Social Security Benefits – All you have to do is spend a few minutes listening to the news to know that there are a lot of potential risks involved with relying on social security benefits. Not only has the government adjusted the age that people become eligible several times, but there are also a lot of financial and political experts who believe that social security will run out over the next few decades. If this actually happens, it will leave the millennial generation without a government retirement program.
4.) Vesting Issues – Many retirement programs, including 401K, require you to be fully vested in order to receive the maximum benefit. The main problem with this occurs when an individual is either laid off or sustains a medical issue that prevents them from putting in enough time. If one of these issues happens early enough, you could lose almost everything that you have invested into the program.
5.) Stock Options – A lot of companies offer their employees stock, but the current economic conditions make most stock options an extremely risky and unreliable retirement plan. Consider for example how many times you have heard about stock prices for a major company plummeting overnight. It is also impossible to predict when an unexpected controversy will greatly reduce the value of a stock. Therefore, it is not a wise idea to rely on stock options to fund your retirement.
There are some ways to protect yourself financially. Not only can you purchase gap insurance to help protect you from certain situations, but you can also diversify your retirement portfolio by making multiple investments and keeping some of your money in the bank.
Byline: Aaron Gormley recommends that you plan for your retirement early so that you are calm and secure when you decide to stop working.