Retirement Benefits: Make the Most of Yours

In addition to health care coverage, your employer may offer you retirement benefits. In many cases, you must choose to contribute a portion of your wages to the plan account at each pay period. Before you skip the retirement savings in favor of a little more money in your pocket each month, think about how much your savings may be able to grow over the years . Bring a more-secure retirement within reach by taking advantage of your employer’s retirement plans. Here’s what you need to know:

Pension Plans

Pension plans pay you a specific amount of money when you retire from work. This amount is guaranteed to you for the rest of your life. These days, not many employers offer a pension plan. If yours does, ask your manager or human resource specialist about how you can become eligible to receive benefits after retirement, and whether you are required to contribute to the company’s pension fund.

Defined Contribution Plans

Two common defined contribution plans are the 401(k) and the 403(b):

With a 401(k) plan, your employer allows you to choose a set amount from each paycheck to contribute automatically to your plan account. You also can choose how you would like the plan manager to invest the money, among various options—such as stocks and bonds— the plan offers. You don’t pay taxes on your money when it goes in to the plan, but you will owe taxes on the money when you withdraw it, usually during retirement.

403(b) plans, also known as “tax-sheltered annuities,” are available only through certain public-sector employers and nonprofit organizations. They function the same way as 401(k) plans, allowing you to make contributions and decide how you would like to invest your money among plan-offered options.

As of 2020, the federal government limits both 401(k) and 403 (b) contributions to $19,500 per year, or $26,000 for employees age 50 and older.

How do I evaluate my employer’s plan?

If your current or potential employer provides matching funds for 401(k) or 403(b) contributions, that’s a valuable benefit. Essentially, your employer will add even more money to your retirement account each pay period above and beyond what you contribute. An employer may set requirements for how much you must contribute to qualify for the matching funds.

If the match is set at 4 percent, for example, it means that the employer will match your contributions dollar for dollar, up to 4 percent of your paycheck. Employer matching is like getting free money for retirement, so if your company offers this benefit, take advantage of it!

You also should investigate the kinds of investments available to you through the plan. Having a wide range of investment options gives you the flexibility to make your retirement plan work for you.

Why plan for retirement now?

Statistics show that the longer employees wait to start systematically saving for retirement, the harder it is for them to set up solid retirement plans. And the younger you start, the more you earn through the magic of compounding interest . Poor retirement planning is a recipe for hardship during what might otherwise be one of most enjoyable periods of your life.

Avoid this predicament by talking to your HR manager or a retirement specialist at your bank or credit union today about how you can plan for a secure retirement.

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