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Five Things to Know About Your Employer Sponsored Retirement Plan

Five Things to Know About Your Employer Sponsored Retirement Plan

Article Date March 2018

If you want to live comfortably during your golden years, you are going to need a nice nest egg. While employer sponsored retirement plans aren’t the be-all and end-all, they should still be an important part of your retirement portfolio. For one thing, a good plan provides you with a dependable source of income for your retirement. A good plan also protects you from investment risk if the stock market tanks or your employer goes under. To help you plan for your retirement, here are five things you should know about your employer sponsored retirement plan.

  1. Employer sponsored retirement plan contributions can vary, depending on your age. Some companies still allow employees to contribute to their plans. If you are 30 or younger, you should be contributing 10 to 15 percent of your salary. After 30, you might have to contribute more to "catch up." Continue putting aside this amount for each paycheck until you retire and watch your savings grow!
  2. Retirement plan withdrawals are taxable and may be subject to a penalty. The IRS has strict rules regarding pensions. You can start to make withdrawals from your plan, starting at the age of 59-½. Early withdrawals are subject to a 10 percent penalty. Keep in mind that the taxable part of your pension or annuity payments is generally subject to federal income tax withholding, regardless of when you start taking withdrawals.
  3. Plans can be paid as an annuity or lump sum payment. Once you are ready to take your pension, you’ll have to choose between an annuity or a lump sum payment. If you choose to take your retirement plan money as an annuity, you’ll continue to get a steady stream of income for the rest of your life. However, you won’t have control over your investment and, in some cases, you may not be able to leave retirement money for your heirs. Lump sum payments may be a better option if you already have a substantial amount of money or if you are in poor health and don’t expect to live that long. Your money also will be there for your spouse or children when you die. On the other hand, a lump sum payment may push you into a higher tax bracket and the money can run out if you live longer than expected.
  4. Plans should complement other retirement income sources. For many retirees, their plan may not be enough to fully cover their everyday living expenses as well as occasional emergencies. You may run into that problem if you are getting a monthly payment and your retirement plan isn’t adjusted for inflation. That’s why you should try to diversify your retirement portfolio with a 401(k), IRA, other annuities, stocks, bonds and/or savings. Also, be sure to factor in what you will be getting from Social Security.
  5. Employer sponsored retirement plans may affect where you can work during retirement. Whether you are looking for a new challenge, want to stay active or need a little extra cash, you may decide to go back to work in retirement. It’s important to keep in mind that there are rules in place for seniors who are receiving a pension and want to return to the workforce. You can work either full- or part-time if you are hired by a new employer. However, if you return to work for the company you retired from, you can only work part-time or on a contract basis. Check with each company’s HR department for details.

Investment advisory services offered through Global Financial Private Capital, LLC. This material is for informational purposes only. It is not intended to provide tax, accounting or legal advice or to serve as the basis for any financial decisions. Individuals are advised to consult with their own accountant and/or attorney regarding all tax, accounting and legal matters.

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