Types of Retirement Benefits
By Fraser Sherman
Living happily in retirement isn’t cheap. To live comfortably, you need to have 20 times your annual income saved, the “New York Times” reported in 2012. Yet, most Americans have less than $30,000 saved for their post-work life. Retirement benefits can help you make it all the way through your senior years without running short of cash. [EXPAND Read more]
Pensions, or defined benefit plans, used to be what most workers counted on in retirement. With a pension or annuity, your employer guaranteed you a set level of income in retirement. If you’re one of the workers who has a pension waiting, you can take your money either in the form of a monthly, regular payment, or one big lump sum. The federal government guarantees most pensions, so if your company goes broke before you retire, you still get your money.
Guaranteeing benefits in retirement takes a lot of cash. In the 21st century, most American businesses favor defined-contribution plans, such as a 401(k). You invest a defined amount each month, tax-free, and your retirement income depends on how well the investments do. This works out much cheaper for employers, but it’s riskier for employees. Bad investments or a market crash right before you retire can leave you with little time to rebuild your portfolio.
The federal government instituted Social Security in the 1930s as a way to provide a guaranteed minimum income to everyone in retirement. If, like most people, you pay Social Security tax on your income, you get money back when you retire. The exact amount varies according to how much you earned and how many years you worked. If you die, your spouse and any minor children are entitled to survivor benefits based on your earnings.
In addition to your own investments, your company retirement plan may also put money into stocks for you. Companies with employee Stock Ownership Plans buy up shares of the company stock and place them in accounts for you and your co-workers. Stock bonus plans allow you to buy into company stock as an investment, at a reduced price. When you sell the shares in retirement, you reap the benefits. [/EXPAND]