In the early 1990s, defined benefit pensions covered an estimated 35 percent of private-sector workers. By 2013, this number fell to 18 percent of private-sector workers. When public and private sector employment is included, an estimated 31 percent of households in 2010 had at least one person covered by a pension. Unfortunately, some of this percentage includes workers who had a pension at a previous job and who are no longer accruing benefits. While 401(k) plans are filling in some of the gap, they are often not enough for retirees.
Retirement Faces a Funding Shortfall
The Federal Reserve Bank conducted a study in 2010 that looked at how many workers were actively saving for retirement. For median households aged 55 to 64, the average
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Whether pensions and Social Security are there, workers will ultimately have to retire. Since traditional retirement plans are declining, your business is well-placed to make up the shortfall. Your clients still need to have a stable, secure retirement, and financial vehicles like annuities and 401(k) plans can make up the difference.
One of the most common options for employers and workers is the 401(k) plan. Unlike pensions, 401(k) plans are relatively easy for the company to set up. The employer matches up to 3 percent of the employee's contribution or gives 2 percent of the employee's wages. This allows the employer to claim a tax deduction, and the worker can earn interest on the 401(k) investment until they withdraw the money. Whether you are selling to a business owner or an employee, a 401(k) plan is an easy option to use. Most people are relatively familiar with this type of plan, and the tax benefits make it more appealing than other options.
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This type of account allows the employer to contribute up to 25 percent of their income or $54,000. These accounts require less paperwork and are easier to set up than standard 401(k) plans. If the client has fewer than 100 employees, they can also use a Simple IRA to reduce paperwork and help employees save. The employee can contribute up to $12,500. Employers are required to make unmatched contributions or match the employee's contributions.
A basic IRA allows employees to contribute up to $5,500 a year. This money is allowed to grow tax-free, which makes it ideal for clients who are preparing for retirement. Some high-income clients can also benefit from initially contributing to an IRA now and converting it to a Roth IRA later on. A Roth IRA is created using after-tax dollars, so the initial contributions are taxed and later withdrawals are not.
Offer Guaranteed Income Options
As more pensions disappear, there will be an increasing level of uncertainty for retirees. [4] The traditional pension allowed employees to know exactly how much they would receive every month. Many of the alternative options provide different benefit amounts based on stock and bond performance. For clients who want income security, a fixed index annuity is an ideal choice. This option allows the client to rest assured with the knowledge that they will be able to depend on a set
Simple IRA is the acronym of Savings Incentive Match Plan for Employees Individual Retirement Account. These accounts grow together with the investor. But, there are different types of accounts that are available for an employee. The simple IRA permits a person to invest in any plan that offers them an opportunity or chance to save money for their future.
Don’t just accept the default savings rate. Often this rate can be as low as 3 percent. While 3 percent is better than nothing, for most 3 percent won’t be enough to maintain your current lifestyle when you retire. Fidelity suggests you contribute at least 10%.
Stephen C. Goss has extensively written about the future financial status of the social security program for the Americans and for the whole world at large. He patently articulates that changes enacted in 1983 on Social Security are expected to bring dynamic revolution, such that the benefits and other compensations would be paid in full and on a timely basis until 2037. In 2037, trust fund reserves are expected to be virtually exhausted. After the reserves are used, continuing taxes will be vastly relied upon to pay 76% of the benefits. There will be need and the necessity for the Congress to deliberate on changes concerning the program. It is estimated that reduction of benefits by 13% or a sudden increase in payroll tax to 14.4% from 12.4% or a combination of these two strategies will lead to full payment of scheduled benefits for the next 75 years. In the article, Stephen Goss explicitly analyzes the financial state of the Social Security program. He fundamentally analyzes the aspects of solvency and sustainability. It also evaluates the effect of the social program on the federal budget. It is apparent that social benefits that Americans deserve will continue in the future with certain adjustments to be implemented by the congress and by the legislative bodies.
There are many trends aiding in the reshaping of Canada’s pension plan industry – going from greater employer interest in sharing or off-loading pension risk to an increased concentration on de-risking.10 An increasing amount of Canadian employees are switching from Defined Benefit plans by removing the DB option for new employees or by introducing a “soft or hard freeze”, according to Borden Ladner Gervais lawyer, James Fu.11 As DB plans are on the decline, Canadian industries are experiencing a growth in capital accumulation plans, such as voluntary retirement savings plans (VRSPs) and pooled registered pension plans (PRPPs) – new contracts designed mostly for the sake of the self-employed and for those employees lacking in workplace pension plans.12 In contrast, Canada’s Research-Based Pharmaceutical Companies assigned IMS Brogan to research and provide an estimation of the overall private drug costs for 2013 to 2017.13 Their report said that Canadian private pharmaceuticals plan drugs cost (such as wholesale and pharmacy makeup plus ingredients costs) should exhibit a growth of a compounded annual rate of 1.6% to 2.8%.14 Following the decrease in interest and benefits in pension plans, the Canada Pension Plan benefits have been increased by up to 1.2% for those already part of it.15 As seen in the article, Canadian companies large or small, are trending towards dropping the DB and DC pension plans and creating a more suitable hybrid program, involving DB and DC pensions
As a person reaches retirement age, they are faced with many things to deal with. Retirement from work is one of the many realities they face. If they are not financially stable enough to retire, many continue to work rather than face the uncertainty of their financial future. Retirees do not get enough from Social Security that many are forced to live in low cost housing or become homeless, especially our veterans. Applying for Medicare Insurance is another obstacle an elderly person will have to face. Many are afraid that they may not be able to han...
Social security, since instituted in 1935, has kept many elderly people from running below the poverty line (Hosansky). In 2015, the Social Security Administration predicted that the funds would be depleted by 2034 (Max). This poses a serious threat to the living situation of future generations when they retire. Our elderly, by today’s standards, enjoy a comfortable lifestyle. They are able to retire and still make over one thousand dollars a month. Some people also have private pensions which allow them to live even more comfortably. But with social security funds running out, we must ask the inevitable question. Is it worth having social security anymore? Social security should be kept. One must never fully rely on social security. In addition
b. Defined benefit pension plan—A pension plan that defines an amount of pension benefit to be provided, usually as a function of one or more factors such as age, years of service, or compensation. Any pension plan that is not a defined contribution pension plan is, for purposes of Subtopic 715-30, a defined benefit pension plan.
A traditional Individual Retirement Account (IRA) “is a way to save for retirement that gives you a tax advantage…” (www.irs.gov, 2016). It is a retirement account [401(k)] that an investor is able to make contributions to, similar to a savings and checking account. Once money is added into the IRA, an individual can invest the funds into different investment vehicles; such as: stocks, bonds, mutual funds, etc. With regards to tax advantages, the individual who opened the account will
Deciding what to do with retirement funds can be a tricky business. Whether you are changing jobs or it is time to make a decision on what to do with a maturing IRA, understanding your options is the best way to ensure you are making the right decision.
The push for Congress to pass legislation protecting the rights of employees and their retirement was inevitable. Retirement plans are extremely important for all working individuals. Having funds to keep or exceed ones current standard of living and to enjoy one’s life beyond expectations after retire...
Options plan can be allocated to employees according their full-or part time status plus a percentage annual salary. New employees can choose three options.
Investing in your future now can lead to many positive investment outcomes in the future. Some of these include traditional IRA, Roth IRA, Coverdell Education Savings account, Keogh Plan and one of the most popular, the 401 (k) Plan. All of these retirem...
Saving up for the retirement is one of the most important decision we all should make in our 20s. To do so, we can open an individual retirement account (IRA). IRA is mostly like a saving account, which helps you build your nest egg. The difference of IRA with a saving account is that you can use some tax-advantages while you are saving up for your retirement. “Individual retirement accounts, or IRAs, give people a way to build tax-deferred savings for retirement. An IRA is an account, not an investment” (Bankrate, 2009). There are four types of IRA: Traditional IRA, Roth IRA, SEP IRAs, and SIMPLE IRAs. According to “Roth IRA vs. Traditional IRA: What's the Best Choice for You?” an article by Matthew Frankel the Traditional and Roth IRA are
Pension provides an income when people have stopped working. Also, it provides important forms of insurance against long life, prices, relative benefit drops and savings shocks. As well as it is an important benefactor to the financial security of a majority of Australian men and women of retirement age, with about 70 per cent of people of pension age receiving the Age Pension (Australia and Treasury, 2015). The government can provide this type of insurance for less than it costs individuals to insure themselves by sharing long life risk, and hedging the
Annuity is known as the set of equal series of payments, which is made each year. Previously, people used to pay a specific amount to the governments and in return the government used to give benefits to those people. There are several characteristics of annuity such as it is considered as a viable investment driver, which is only considered as the only suitable option in commercial investments because of the nondeductible nature of the annuity. In addition to this, there is no limit as well and annuity holder could invest unlimited funds in an investment and contribution plan.