There is an old adage that says “numbers don’t lie.” So when it comes to figuring out how much money do you need to retire, you need to understand basic math, a few retirement concepts, and some financial retirement concepts. This is where you may wish you had paid more attention to your high school math teacher. (more…)
Employer-sponsored defined benefit pension plans in which the benefit is defined by account value rather than monthly lifetime retirement income. Cash balance plans are often referred to as “hybrids” because they have some of the characteristics of traditional “defined benefit” (DB) pension plans and some of the characteristics of “defined contribution” (DC) plans, such as 401(k). In general, traditional defined benefit plans promise qualified employees an income benefit for life (or some other period) starting at “normal retirement age,” without regard to how much (or little) the employer must contribute to the plan to fund the benefit. Defined contribution plans, on the other hand, promise only how much the employer will contribute to a qualified employee’s account from time to time until the employee retires but they make no promises with regard to investment earnings or results, let alone a monthly income benefit for life. (more…)
Corporate sponsors are taking a harder look at their employee benefit plans. Clearly the Employee Retirement Income Security Act of 1974 (ERISA) contributes to this increased attention by formally requiring that pension plans be run solely in the interests of plan participants and by making plan fiduciaries personally liable for any breach of fiduciary duties. The growth in pension plan asset and retirement assets also draws the attention of senior management; when a plan’s size exceeds the assets of the largest corporate division or perhaps the total market value of the outstanding corporate stock, (more…)
Approximately one-fifth (20 percent) of post retirement income sources today comes from qualified retirement plan assets. Within 20 years, that number will increase to just under one-third (30 percent) of post retirement income. These are broadly defined as assets on which you have not yet paid retirement income taxes, though there is one exception in the Roth IRA. (more…)
A defined benefit plan is the granddaddy of retirement plans. Unfortunately, in the years to come, these plans will likely become the retirement equivalent of a dinosaur. In a defined benefit plan, as noted earlier, an employee’s years of loyal service are rewarded with the continuation of income post retirement based on a predetermined formula defined by the company. These formulas vary from company to company, so if you’re covered by a defined benefit plan, be certain to ask your human resources department to provide you with the information you need to review your benefits. (more…)
Defined contribution plans have several characteristics involving the following factors:
• Some plans allow you to defer a portion of your compensation and contribute it to the retirement fund, (more…)
Once you identify your personal financial retirement profile, you can move to the next level on the financial planning for retirement. Many people accumulate different types of property for pension that can be used for retirement. The type of property one owns and its tax characteristics can be important in creating an overall retirement strategy that fits well into Level III of the financial pyramid. Let’s take a look at how to create efficiency and diversification in an integrated program. (more…)
Among the variety of retirement plans you can pursue, some qualify for tax deferral by the regulations of the federal government, and others don’t. The federal government passed the Employee Retirement Income Security Act (ERISA) regulation in 1974. This legislation and its requirements determine whether a retirement plan offered by employers or an employee organization (such as a union) qualifies for tax deferral of investment and interest until retirement age. (more…)
Retirement plans come in all shapes and sizes, but most plans fall into a few broad types. The following is a list of the major categories. I discuss the individual plans in detail later in the book.
A defined benefit plan is a retirement arrangement in which your employer guarantees the benefit. (more…)
Pension investment policy is one decisive point in planning and implementing a successful pensions plans. This area should need thoughtfulness due to its vast responsibility factors: the consequences of investment performance results may adverse pension investment goal. Hence, it should not be delegated to external third party consultants or money managers. Pension boards, top managements, shareholders, taxpayers and nonetheless employees, should pay a vital role in monitoring and reviewing pension investment policy. In the first place, there should be policy which will communicate the objectives of the pension plan policy scope and objectives to those all parties involved. The policy should have several key elements and aimed in funding pension liability for Defined Contribution Plans and Defined Benefit Plans. (more…)