Four Employment Benefits You Can Take Advantage of After Retirement
Planning for your future retirement? Secure your financial needs by taking advantage of your employment benefits. Whether you plan to stay long on your current employer or not, here are four things to explore when you plan to take advantage of your employee benefits as you retire.
Tax Advantage on Your Retirement Plan
This is an easy way to save money for your retirement. Most companies offer this tax-advantage plan because it is flexible for those who want their money to grow while they’re working. Employees can opt to schedule an amount in their payroll for investments. There will be an auto-debit of the contributions from their taxable income.
It will remain tax-free until retirement including gain tax, provided that the employee is about 60 years old or else it will be subject to penalties and taxes. The employer will then invest it in a high-return investment. An employee can withdraw their contributions if it’s for an emergency. However, it might still invite a penalty.
These defined contribution plans are available to 401(k) plan for private company employees; 403(b) plans for public school personnel, charities and those who work in churches; lastly, 457(b) plans who work for local governments and those state employees.
Valuable Retirement Plan
An individual retirement account (IRA) is a way to grow your fund on your retirement savings with the advantage of enjoying tax-free or tax-deferred gains. There are three types of IRA which vary with advantages.
Traditional IRA offers tax benefits like 401(k) plan and is a good alternative in case your employer does not offer the latter. But unlike 401(k), this allows you to purchase your choice of investments in stocks, bonds, or real estate.
Roth IRA is more flexible than traditional because it avoids taxes and penalties when withdrawing contributions. It also eliminates taxes on earning and contributions on the account upon retirement. Because tax payments were already made for every contribution you put into account. Roth IRA will be an excellent choice if you are planning to take huge tax advantages.
Rollover IRA. It means to roll your funds from an existing retirement plan such as 401(k) or IRA to a new IRA retirement account. This means choosing between traditional or Roth but no limitations on the money you want to roll over. This can help you improve your funds especially when you are changing employer.
Make it a habit to check and update your investment when needed, just in case your retirement goals will change.
Employer-Sponsored Retiree Health Benefit
Healthcare insurance is one of the major benefits that most employers offer as it attracts to hire more productive employees. However, most of the employees also eliminate their coverage upon employee retirement. This is mainly because this will cost them with increased premiums because the retiree is often prone to major health problems.
This can be more expensive in providing health benefits rather than active employees as they come to use more of the medical and hospital services. On the contrary, this can also mean a threat to many financial and medical institutions due to a probable increase in numbers of early retirement. Adding to this are the retirees who live longer.
However, if you are lucky to have an employer who does not remove healthcare coverage after retirement, then make sure you take advantage of it. Save up with your medical expenses such as prescription drugs and physician fees. But if you do not qualify for the retiree health benefit, you can continue your existing employer-sponsored health care plan. However, you will have to ask your provider if they offer a regress plan.
Defined Benefit Plan
This is popularly famous as a pension. Unlike the 401(k) plan and IRA, this is fully funded by employers. This is the easiest plan to manage. But, just like the employer-sponsored retiree health benefit, it might soon come to an end. Fewer companies are offering this plan in comparison to earlier. However, it can be subject to higher administration cost due to its complex actuarial projections for guarantees.
Since fully funded by the employer, they also solely bear the risk if the return on investment won’t cover the benefit due to employee. As for the employee, they have no control over the funds. But it will be best to gauge if you will have the retirement advantage you are expecting by weighing your company’s longevity risk versus their financial strength.
Retirement can lead you to uncertainty but when planned early can make a major impact on your future. Wisely choose a retirement plan that best suits you and able to support your financial needs in the future.
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