Around 46% of Americans say they don’t know how much they have saved for retirement. This can be problematic as it makes it harder to plan and guarantee for the future. Using a retirement income planner is a great way to evaluate your long-term financial goals and learn about different types of retirement savings plans.
If you want to hire a retirement income planner but don’t know where to start, the first thing to do is determine whether you have a 401(k) or pension plan. There are several key differences between the two that you should know before contacting a retirement income planner. Below is some information about both plans, and what they can mean for your retirement.
Pension plans are employer-funded and allow you to receive a monthly payment upon retirement based on eligibility requirements (typically a minimum number of years with the company). Usually employees do not make their own contributions to their pension plan. Some pension plans may also provide a spouse survivorship option which may result in a lower monthly payment upon retirement. However, if a worker predeceases his or her spouse, the surviving spouse continues to receive benefits.
One downside to pension plans is workers have limited control over how and when they receive their pensions, as the employer is solely in charge of contributions. Additionally, finding jobs that offer a pension is becoming more difficult, as a pension plan is a large and expensive commitment for employers to make.
Many employers now rely on 401(k) plans for employee retirement options because, unlike pension plans, the responsibility is mainly on the employee to contribute. However, many employers will also make contributions to their employees’ 401(k); but, like pension plans, eligibility requirements may need to be met before an employee can receive those benefits. 401(k) contributions can also be placed into other investments (like mutual funds), depending on available plan options.
One potential downside to a 401(k) is losing money due to poor investments. Investments are not risk-free and the responsibility is on the employee to invest well without their monthly payments going down, or impacting their savings.
Planning for retirement is not easy, and you may not know how to start. Contact a professional retirement income planner today to discuss your options, your current workplace offerings, and the best way to manage your investments—and your future.