Retirement Planning 101
Soup to nuts, whatever your age
Economics-Based Personal Finance is about relatable case studies, and the tone of Chapter 7 begins with retirement savings questions of two young individuals, JW Kim and Steinbeck Blue. Kim and Blue share a need to decide on retirement, not because it is important to them, but because their employer offers a 401(k) as an employee benefit. It is time to sign up. Does it make financial sense?
Over the next few weeks, installments will present how to evaluate retirement questions, including measuring the net benefit of an IRA, Roth IRA, and 401(k). Is a Roth better than a regular IRA? It might be, and it might not. If you are younger, should you save for retirement if your employer sponsors a 401(k) plan? There are costs to savings and benefits from doing so, and since the book has a textbook-like feel, both will be presented for a more complete understanding.
When to retire and how to withdraw money more effectively during retirement are important questions for midlifers and retirees. You will learn how to measure potential solutions to understand the economic cost of early retirement better. For some households, early retirement is a good fit. Others, not so much.
Today: Retirement planning begins by distinguishing between employer-sponsored plans, such as defined contribution (DC) plans, which are more popular today, and defined benefit (DB) plans, which I describe as legacy plans among private employers and somewhat prevalent among government workers. According to the Congressional Research Service, as of 2022, defined benefit plans cover thirty-three million individuals in the U.S.
What type of retirement plan do you have?
Whether retirement is funded by a plan offered by an employer, an Individual Retirement Account, or a Roth IRA, the best choice can mean hundreds of thousands of dollars gained over another alternative. Household differences matter, and Chapter 7 shows how to solve your retirement questions.
Excerpt:
The complete installment is in today’s PDF: