Retirement Plans

Retirement plans- The different types of retirement plans include personal plans, government-sponsored plans, employer-sponsored plans, and annuities. 

• Personal Plans: The Individual Retirement Agreement or IRA is the most popular example of personal retirement plan. These plans vary according to their tax treatment.
• Government-Sponsored Plans: the Social Security plan is the largest government-sponsored retirement plan.
• Employer-Sponsored Plan: Employers sponsored plans are of two types namely, Qualified and Non-qualified plans.

Qualified Plans

Some of the plans covered under qualified plans are defined as under,

• Defined Benefit Plans: These include company retirement plans such as pension plans, wherein a specific amount based on years of service and salary history is received by retired employees. The employer bears the investment risk in such cases. Contributions may be made by the employee, the employer, or both. Since annual contributions can be larger in the case of people who have up to 20 years until retirement; these plans are better suited for such people.
• Pensions: This is a type of retirement plan that guarantees that a specific amount shall be paid out to the employee during retirement. The calculation of this amount is done on the basis of the employee’s salary, years of experience and a fixed percentage rate. The company’s policy determines the eligibility of the employee. Companies may require service for a predetermined period of time before the employee can lay claim to the pension plan. In case the employee leaves the job, the pension plan remains with the previous employer.

 

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