There are various retirement plans for employees to use, each plan has its own benefits and limitation, and one can select any form of retirement plan according to his /her own requirement.
The main purpose of any retirement plan is to make the future of the employee safe by paying him/her the pension. There are two types of retirement plans:
There are various common types of retirement plans such as:
1. Government plans:
Governments have also set up retirement plans for its citizens, these plans are more secured and risk free, the common example of government retirement plans is the social security plan.
2. Personal plan:
The most used retirement plan is the private retirement plan where the individuals pay certain amount on their own will and receive a certain amount out of it at the certain age. The most common example of personal plan is the IRA; there are various types of IRA according to the tax charges.
These are the retirement plan made between the insurance companies and individuals; there are two main types of annuities, fixed or variable.
4. Employer sponsored plans:
The plan where the employer funds the retirement plan, there are two types of employer sponsored plans one is the qualified retirement plan and the other is non-qualified retirement plan.
Thereare several type of qualified retirement plan:
This system is funded by the employer. This system promises to give you a certain amount of money after the certain years or the employer calculates the amount for your retirement by considering the factors like your age, your income while you were employee of the company and your duration with the company.
· Defined contribution:
As the name suggests this account works on the basis of the contribution of your employer and you. Thus it doesn’t ensure you any fixed amount at the time of retirement, the amount depends on the contribution you and your employer made.
Benefits of pension funds:
There are various advantages of the cash pension such as:
1. The biggest benefit of pension is that it provides you risk free condition that is you will get the certain promised amount at the promised day without any trouble.
2. The pension amount will provide you the money at the age when you would not be able to earn much; they act as the hidden investment for you.
The few disadvantages of passion are:
1. It may act as an investment but the individual has no control on increasing or decreasing the rate of interest he could earn.
You cannot access the saving until you are a certain age even if you needed it the most.