For many people, retirement is a time to relax and enjoy the fruits of their years of labour. It can be a time to travel, spend more time with family and friends, or simply enjoy a more leisurely lifestyle.
For others, retirement can be a time of financial stress. Many people are unprepared for the costs associated with retirements, such as healthcare and long-term care. Others find that their retirement savings are not adequate to cover their expenses.
Several government programs can help ease the financial burden of retirement, but Bill Schantz of Mid Atlantic Financial, LLC believes it’s important to understand the nuances of these programs before counting on them to fund your retirement.
3 Government Retirement Programs
A 401(k) is a retirement savings plan sponsored by an employer. It’s a tax-deferred savings vehicle, which means you don’t pay taxes on the money you contribute to your 401(k) until you withdraw it. 401(k) contributions are made pre-tax, which means they reduce your taxable income in the current year. For example, if you make $50,000 per year and contribute $5,000 to your 401(k), your taxable income will be $45,000 for that year
The benefits of contributing to a 401(k) include:
• Tax-deferred growth: Your money can grow tax-free until you withdraw it at retirement
• Employer matching contributions: Many employers will match a certain percentage of your 401(k) contributions, which effectively gives you free money to help grow your nest egg.
• Tax breaks: The amount you contribute to your 401(k) is deducted from your taxable income, which can lower your tax bill in the current year.
Bill Schantz explains that a pension is a retirement benefit some employers offer. It’s a guaranteed income stream that pays out a set amount of money each month, typically for life. Pensions are becoming less common, but they’re still offered by some employers, especially in the public sector.
The benefits of a pension include:
• A guaranteed income stream in retirement: A pension pays out a set amount of money each month, typically for life. This can provide peace of mind knowing that you have a guaranteed income stream in retirement.
• Employer contributions: Most pensions are funded by employer contributions, which means you don’t have to contribute anything to receive this benefit.
• Tax breaks: The amount you receive from a pension is usually taxed as ordinary income, but some of the money may be taxed at a lower rate if it’s considered a qualified plan.
Social Security is a government program that provides benefits to retired workers and their spouses. The program is funded by payroll taxes from workers and employers.
The benefits of Social Security include:
• A guaranteed income stream in retirement: Social Security benefits are paid monthly and are based on your earnings history. If you qualify for benefits, you can count on a guaranteed income stream in retirement.
• Inflation protection: Social Security benefits are adjusted for inflation each year, which means your benefits will keep pace with the rising cost of living.
• Survivor benefits: If you die before reaching retirement age, your spouse and dependent children may be eligible for survivor benefits.
According to Bill Schantz, there are several government programs that can provide financial assistance in retirement. It’s important to understand how these programs work so that you can make the most of them.