Sadly, one of my favorite retirement plans is slowly fading
away, the pension plan. A pension plan, according to Investopedia.com, is a retirement plan that requires an
employer to make contributions into a pool of funds set aside for a worker's
future benefit. The pool of funds is invested on the employee's behalf, and the
earnings on the investments generate income to the worker upon retirement.
This means that retirees would be able to receive this money
guaranteeing lifetime income, in almost all cases, as long as the employer is
in business. It all changed in the early 1980’s when companies started
introducing the 401(k) plans named after the IRS code of The Revenue Act of
1978 which allowed employees to put money aside for retirement on a tax
deferred basis and was meant as a supplement to the pension plans and Social
Security. However, companies saw this as an opportunity to reduce and eliminate
pension plans over the years saving themselves from paying retirees a salary for
the rest of their lives. When the 401(k)
plans were introduced, we were in a high interest rate market so it made sense
to defer taxes to a later period of time when interest rates came down. Now we
are at historically low interest rates, does it make sense to defer taxes to a
later period of time?
Most employees enter the workforce today with knowledge of
one or two types of retirement plans. The 401(k) or the 403(b) plan that their
company offers allows you to contribute as the company may offer matching
contributions. Rarely are the employees educated by their employer on other
types of retirement plans available to them or whether they are a good fit. Another
type of retirement plan, the IRA (Traditional and Roth) is also commonly known
to many employees but usually only after they have left a previous employer and
was told to “rollover their 401(k) into an IRA” or they may be instructed to
fund one at the advice of their tax advisor or accountant. Many workers have both
a 401(k) plan with their current employer and an IRA from their previous employer,
and there is usually nothing wrong with that. However, neither can guarantee
that you will not run out of money before you pass away like a pension does,
and you may end up paying more taxes.
So what can you do? You can actually create your own pension
plan using your own money. Where many advisors will tell you how much money you
need to retire, we at Thrive do not do it that way because we know that number
may not be enough and it has a finite end to it. Contact us today to find out
how we are different and how you can create strategies to help you avoid the
possibility of running out of money and create your five retirement plans.
484-206-4200
800-516-5861
