What is a Retirement Fund and Why You Need One

Retirement planning

We work every weekday to earn enough money for ourselves and our priorities. We pour our blood, sweat, and tears into our work so that we can secure a future for ourselves and our family.

So what happens when we cannot work anymore? 

Who pays for our expenses when the income stops? 

Retirement funds are set up precisely so we can retreat from work after a certain age and let our savings pay for our spendings. 

Retirement funds, or pension plans, can help us maintain our standard of life even when we can no longer manage to go to work. It is essential to take note of your net income and your expenditures in order to figure out how much of your current income you can invest in your retirement fund. 

You Can Spend Your Retirement Years in Peace

Human beings typically find it difficult to work once they have entered their 60s. The body becomes weak, and it simply doesn’t make any sense to put it to work every day. However, retirement does not mean that you should not be able to live in your own house, take care of your loved ones, and pay for your own habits. 

Having a retirement fund would mean that you get to live your life when you’re in your senior years with the same luxuries and the comfort as you do now. Being able to maintain the standard of life you’re used to now post-retirement is of utmost importance, and in order to do that, you need to plan ahead of time.

A retirement fund is the only thing standing between a retired person and poverty, and its need or significance cannot be stressed enough.

You Will Be Able to Afford to Indulge Yourself Even When You’re Not Earning

Pension plans are not merely about survival; they are also about living a dignified life, full of pleasures and good times. Just because you’re retired does not mean you shouldn’t have any fun. Investing in a retirement fund now will let you fulfill your desires when you’re retired, and you can live a happy and content life by depending on the fund.

If you want to have the ability to indulge yourself when you’re retired, it’s never too late to start investing in pension plans now.

You Will Be Prepared for Emergencies in Your Old Age

Disasters don’t discriminate between the young and the old. Any calamity may befall us at any moment in time. While you’re earning money every month now and can manage to pay for huge, unexpected expenses without running into debt, this might not be possible when you’re retired. 

If you have a generously large retirement fund to rely on, no matter what tragedy you face, you can do your best to fix it without worrying about bleeding money.

Final Thoughts

If you’re convinced that you need to start investing in pension plans, you can start by doing some research on services that will let you invest in one and then go ahead and invest in one that you think you can trust.

5 Ways Gig Workers Can Save for Retirement

freelancer

Are you a freelancer, gig worker, or a self-employed person looking for ways to save for your retirement?

A huge number of people are realizing the health, wealth and other long term gains of working for yourself than being an employee. In the old days– due to the rise of the industrial revolution– Americans were conditioned to work for a corporation until they got old and then enjoying their twilight years on pension or retirement plans offered by the employers. But things have changed in the past decade.

Gigi workers are on a rise and they are looking for ways to get the same security and benefits that their forebears had. But is it possible to be financially secure while working for yourself?

Here are a few sensible ways a gig worker can save for retirement.

1. Contribute to a self-employed 401(k) or solo 401(k) plan

A self-employed 401(k) or solo 401(k) plan was created for self-employed people who work for themselves and have no employees working for them(other than their spouse, children, family members, etc). This retirement plan has similar benefits to the one that is provided by an employer. You have to contribute each month from your pre-tax earnings. So, you don’t have to feel insecure(as for as your retirement is concerned) just because you don’t work for an organization like others.

2. Open a SIMPLE IRA account

SIMPLE IRA stands for “Savings Incentive Match Plan for Employees- Individual Retirement Account”. With SIMPLE IRA you can contribute each year up to $12,500. People over 50 years of age can also make an additional contribution of $3,000. This makes your annual contribution of $15,500(from pre-tax earnings). Although the contributions are quite less compared to other retirement plans mentioned in this post, a freelance worker with low income might find it suitable.

3. Invest in Mutual Funds

Want the safest and the most profitable investment option for your retirement?

Mutual funds might be your safest bet. According to a report by the Investment Company Institue, “an estimated 100 million individual Americans in 56.2 million households owned mutual funds in mid-2017”. When almost every household relies on mutual funds for their retirement savings, why wouldn’t you, as a freelancer or a self-employed person, invest in them?

4. Make larger contributions with Simplified employee pension (SEP)

Want a retirement plan tailor-made for a gig worker?

SEP IRA is a traditional IRA for a freelancer, gig worker, contract worker, or a self-employed person. Similar to other plans like 401k, the contributions you do to the SEP-IRA are tax-deductible.

Allowance to make larger contributions is the biggest benefit of choosing a SEP IRA as your retirement plan. According to the IRS website, a self-employed person can contribute as much as 25 percent(annually) of his/her net earnings from self-employment. The maximum limit is $56,000 in 2019. This is way higher than the SIMPLE IRA plan.

5. Set up a Payroll deduction IRA

Payroll deduction IRA might be the right choice for someone looking for an easy and fuss-free retirement plan. To get started, you have to establish a traditional or Roth IRA with a financial institution. Secondly, make contributions to the financial institution as per your IRA plan. You do have to pay a $10 setup fee and a $10 annual maintenance fee.

Conclusion

Working for yourself has its pros and cons. Not having financial security is one of the cons of freelancing or being self-employed. But with plans like SIMPLE IRA and SEP IRA, you can easily contribute each month and have your future secured.