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Retirement planning

 Do you need to do it? Is it important?  Yes, it’s important because its your future. So let me tell you how you can do it in the best possible way. Fist of all you need to check whether you are covered under any retirement plan related to your employment means what is the retirement plan your employer has offered you. Most of the retirement plans are authorized under internal revenue code such as Section 401(K) or 403(b). As on date there are many retirement plans are available. You can opt for the plan which suites your retirement planning requirements. Let’s discusses the most common plans.

 401k retirement plans -  The 401(k) plan is a employer retirement plan under section 401(k) of the Internal revenue Code in the USA mainly by private sector companies.

A 401(k) plan allows an employee to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. The employee may decide to have a section of his or her salary paid directly into his or her 401(k) account. In participant-directed plans, the employee can choose from a number of investment options, usually an assortment of mutual funds that emphasize stock, bonds and a mix of the both. Many companies' 401(k) plans also offer the option to purchase the company's stock.

403(b) retirement Plans - The 403(b) plan is a tax advantaged retirement savings plan available for public education organizations, non-profit employers and self-employed ministers in the United States. The tax treatment in this plan is similar to 401(k) plan. In simple words it can be said than an employee salary deferrals into a 403(b) plan are made before income tax is paid on it, and allowed to grow tax deferred until the money is taxed as income when taken out of the plan.

The Savings incentive match plan for employees (SIMPLE IRA) - This plan servers companies with 100 or less than 100 employees and the good this is that it also includes the self employed people for self employed retirement plans also. The plan may be structured like 401(k plan but the disadvantages is that IRA contribution limit does not apply on this plan.

Simplified employed Pension Plans (SEP-IRA) - This is for a comply with 25 or less employees. The plan may be structured like 401(k plan but the disadvantages is that IRA contribution limit does not apply on this plan. This is something we can say retirement plans for small business.

                  Why you need to plan for your retirement.

• Maintaining a same life or better lifestyle after retirement.

• Having a complete financial independence post retirement

• As you would get lot of spare time after retirement, you would like to use it as you would like, for that you would need money which you would have if you plan your retirement.

• As importance of retirement planning is recognized by state their is tax benefit on almost all the retirement plans depending upon the nature of the retirement plan.

• As you know , today with the innovation in medical science the average age of person is more that what it use to be. therefore , you need to plan very carefully for your retirement.

• Take care of inflation. All retirement plans are designed to take care of inflation. They reduce the risk if inflation

                               Retirement planning can be done by investing in following;

• Post office Savings scheme : For conservative retirement planning this is the most popular vehicle. You can invest in Public Provident funds (PPF), National Savings certificates (NSC) etc. You also get tax benefit on the above mentioned investment instruments.

• Mutual funds: For higher investments you need to invest in equity as you are planning for retirement, we suggest that you invest in equity through mutual funds. Mutual funds are a safer way to invest for retirement planning with high returns as compared to conservative products. There are various classification of mutual funds some are as follows.
  • Growth scheme- In this an investment objective in capital appreciation over a long period of time. The major investment of the fund is in equity.
  • Money market scheme- In this scheme  investment is made in liquid funds such as treasury bonds, commercial paper etc which carry at all not risk with low returns.
  • Income Scheme- Investment is done in debentures and government securities.

   

• Balanced scheme- Here a fund manager tries to establish a balance between income and growth scheme. Therefore, makes it less risk with relatives higher returns.

   

• Life Insurance Pension Plans. - These pension plans are mixed with insurance. Here you plan for retirement and insurance both. In this case the premium is little higher as you also get insurance coverage. They require regular premium contribution.

   

   

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