What is your retirement pension? That is a question many retirees face, as they begin their long walk down the memory lane of their working lives. Some retiree realize they will never need the pension money and move on; others realize the pension is their lifeline and want to safeguard it for their future. No matter your motivation, you have options and need to know where to start. Your retirement pension is one of the most misunderstood aspects of retirement planning; in this article I will try to give you an overview of the various types of plans you can choose from and why your retirement pension may be one of the most important aspects of your plan.
In your first place, you should decide if you want a defined or variable retirement pension. A defined pension means that you are awarded a certain amount of money each pay period regardless of what your performance is. Depending on how long you have worked for your employer, some employers may match the amount the employee contributes up to a certain amount. Variable pension is a bit more confusing; as opposed to a traditional pension, the value of the pension is tied to a predetermined index (like the Dow Jones Industrial Average). As you approach retirement, your pension may decrease due to inflation or your investment choices, but if you leave your employer before reaching the retirement age, you will receive your full retirement pension.
When you start to research which type of pension plan is best for you, it is important to think about the risk/reward ratio you will be receiving for your investing activities. Since insurance and pension plans are similar in many ways, there are basically two forms of investment: risky and safe. A risky retirement plan is one where your investment can lose value (if you make bad investment decisions) without any financial compensation for the losses. For example, your pension may be based on the stock market, but if the market takes a huge hit, so will your pension. On the other hand, a safe retirement plan is simply one in which your investments are not susceptible to market fluctuations: if you make good investment decisions, then your pension will not decline.
In order to properly determine whether or not you need a retirement pension, it is helpful to figure out what age you will reach your retirement age. Some people calculate their retirement age at 65 years old and others prefer to wait until they are significantly older in order to receive their retirement pension. The best age to retire is when you can see your first profit after 20 years of working; if you wait until you are forty to sixty years old, you will have less potential for a large pension at retirement. If you are concerned about how much money you will make at your target retirement age, it is recommended that you work out a realistic retirement scenario and take this into account when determining if you really need a retirement pension.
One of the main factors that lead to people not saving enough for their retirement pension is that they do not save early enough. You should save twice the amount of what you earn every week. Saving early helps to guarantee that you will be able to fund your retirement pension. You should also save for your dependents as well as for buying your home when possible, as this will reduce your dependents’ taxes and help you save more money.
The main thing that you should remember about your retirement pension is to plan ahead and set aside a reasonable amount to fund your retirement. Remember that while you may be able to get a nice pension at retirement age, it is important to think about what you can do with your pension once you stop working. After all, you may not live long enough to comfortably pay off your debts and provide for your family. You should also remember to save money for your in-laws as well as for your children’s education, and always keep in mind that age is only one factor that should affect your retirement age.