Older adults have heard this time and time again, and had time to let it sink in, but for those who don’t know, here is a beginners guide to retirement with 5 key terms you’ll need to understand. If you’re a young man or woman, I especially encourage you to read on.
First Things First
It is important that you know the key terms and what they mean before you learn how they relate to one another. Here are a few simple definitions in retirement:
1.) 401(k) Programs
The 401(k) is essential to hard-working middle class American – a good retirement plan. 401(k) programs are workplace contributions to a tax-deferred account. You can choose an amount that you would like to set aside in your 401(k) account (monthly), and depending on the company you work for – they will match your contribution at a certain percentage.
2.) 401(k) Rollovers
Changing jobs? When you are switching over to a new 401(k) program you can move qualified assets over in contribution to your new plan.
These are designed to help ensure a steady stream of cash flow to the retired person during their retirement years. It is a financial product sold to an individual for a sum that grows over time and is repaid to the individual in payments after a certain amount of time.
4.) IRA Individual Retirement Account.
IRA’s are used as investing tools for individuals who want to earn funds for retirement savings. You may contribute to an IRA up to a set amount of dollars.
Anything you withdraw from an IRA (excuse Roth IRA’s) is taxed as income; including the capital gains. Income is likely to be lower during retirement years, so typically the tax is lower.
5.) Pension Plans
A method where an employee transfers part of his/her current income stream toward retirement income. There are two types. In a defined-benefit plan, your employer guarantees that you will receive a definite amount of money when you retire. In a defined-contribution the employer makes contributions for the employee, but the benefit depends on the investment’s performance.
TIME IS YOUR BIGGEST ASSET. The earlier you start, the longer your money has to grow.
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