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Retirement planning is the process of ‘determining retirement income goals and the actions and decisions required to achieve those goals.’ To make that you have a financially secure retirement, it is wise to consider the best retirement plans at an early age.
Listed below are some of the best retirement plan options to consider in 2020.
|Table of Contents|
|Defined Contribution Plans|
|Individual Retirement Accounts (IRA)|
|Non-qualified Deferred Contribution Plans (NQDC)|
|Guaranteed Income Annuities|
|Cash-Value Life Insurance Plan|
Pension is the first thing that comes to people’s minds when they think of retirement income. It requires very little involvement as the employer contributes the money on behalf of the employee. You work, you retire, and you collect your pension. One of the drawbacks of pensions is that your pension payment will always be the same every year after your retirement.
2. Defined Contribution Plans
Defined contribution plans are offered by most employers. There are four primary defined contribution plans like 401k, 403b, 457, and TSP. When you participate in a defined contribution plan, you pick the option that is suitable for you and decide how much you can contribute. For a certain portion you contribute, your employer contributes as well. This is one of the best retirement plans to consider.
Some features of the 401k plan are:
● Available mostly for private-sector employees.
● Contributions are tax-deductible.
● Investment income accumulates on a tax-deferred basis.
● Total contributions from both employee and employer can reach up to $60,000 if you are 50 years or older.
● Some 401k plans allow withdrawal options for events like disability or hardship events.
403b plans are for tax-exempt organizations like public schools, hospitals, and churches and work the same as 401k plans. 457 plans are offered by state and local governments and some tax-exempt organizations. It works the same way as 401k and 403b plans.
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3. Individual Retirement Accounts (IRA)
● Roth IRAs
This type of retirement investment plan is funded with your taxed money so that you can enjoy tax-free growth and withdrawals. It is a defined contribution plans that can balance the pre-tax and after-tax benefits.
● Traditional IRAs
Traditional IRAs are the same as Roth IRAs concerning annual contribution limits but do not have any income restrictions. It is a good plan option for those who are closer to retirement because it gives both tax deductions and tax deferral options.
● Self-Employed IRAs
Self-Employed IRAs is the most common retirement savings plan for self-employed individuals and small business owners.
This is a low-cost plan with a large contribution limit and allows for a tax shelter and tax-deferred growth. It is also very flexible as you can decide how much you wish to contribute or can skip one year if you can’t contribute.
4. Non-qualified Deferred Contribution Plans (NQDC)
The Nonqualified Deferred Contribution Plan is a better option for those with higher incomes but has reached their contribution limits. Deferring a portion of your income for a later time looks very appealing as it will grow tax-deferred and tax-free in the year you become entitled to the income. NQDC does not have any income restrictions or contribution limits and has an array of best investment plans.
5. Guaranteed Income Annuities
A Guaranteed Income Annuity provides a guaranteed income when you retire. With this plan, you buy yourself a fixed monthly payment for your retirement.
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Single-Premium Immediate Annuity will let you invest and take immediate income payments whereas the deferred-income annuity along with a cash-refund option is more flexible as it will let you decide when to start the income payments.
6. Cash-Value Life Insurance Plan
Cash value insurance plans allow you to take a loan against your death benefit that in turn serves as an income during your retirement period. For example, a $500,000-dollar policy could provide you with a loan of $250,000 and can be paid out as a lump sum amount or in several withdrawals.
The loan is tax-free and serves as an excellent retirement income for an unemployed spouse as well as provides life insurance coverage.
7. Real Estate
Real-estate investments is a good retirement investment plan for those who haven’t saved much and are fast approaching retirement. Real-estate investments can provide you with a substantial income flow.
A financial advisor like an experienced Registered Investment Adviser (RIA) can provide you with valuable advice if you are planning to invest in real estate. They will be able to help you balance the risk with a property that can give you the highest revenue gains.
During old age, one might come across serious and unexpected emergency situations. So, it is important to have an adequate amount of money to deal with all these situations. This is the reason why you require to choose out of best retirement plans for secured future.
Retirement planning assures that you have a sufficient income source to take care of your daily expenses after your salaried income stops.