What Is the Purpose of a Retirement Plan?

The purpose of a retirement plan is to provide financial stability so people can leave their full-time jobs at retirement. Planning has become quite a challenge because of the rising cost of living--especially health care. According to a 2009 Saturday Evening Post article, the number of people older than 65 in the workforce had jumped from 3.8 million to 6.1 million in just 10 years.

What is in a Plan?

A retirement plan includes a variety of savings tools such as IRAs, 401ks, annuities, mutual funds, and other investments. These financial instruments have different advantages and disadvantages and should be chosen carefully, based on expected needs, tolerance for risk, and available funds.

How Much?

Financial planners usually estimate that you will need about three-fourths of your pre-retirement income per year for however many years you plan to live. For example, if you were making $50,000 per year and you planned to live for 20 years after retiring, you would need about $750,000 stashed away for retirement.

IRAs

IRA stands for an individual retirement account. The advantages of using one of these plans are reduced tax liability. There are two types of IRAs: Roth and traditional. Roth IRAs allow the money to grow and be withdrawn tax-free. Money contributed to a traditional IRA is tax-deductible the year it is contributed.

401k

These are retirement plans sponsored through an employer. Often, an employer will match, at least in part, money that is contributed. These funds are usually tax-deductible in the year they are contributed.

Mutual Funds

These are, in essence, a bundle of stocks bought together to minimize risk. The bundles are managed by professional investors who attempt to maximize the return for individual investors over time.

Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk.

Capitalstars is a SEBI registered investment advisor. Schedule a call with Capitalstars investment consultant or drop a mail at backoffice@capiltalstars.in and we will get in touch with you. You may also call us on 9977499927.

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