Retirement might seem like light-years away, but in the words of our dear Ferris Bueller, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”  What he forgot to say was that you could also have no retirement savings and end up having to work your whole life instead of taking that awesome permanent vacation at age 65.  This would suck worse than the leach Gordie Lachance got in his pants in Stand By Me. (Sorry, that’s my last 1986 movie reference.)

Generally speaking, retirement plans are abundant and include products with clever names like IRAs, 401(k), 403(b), 457, and pension plans.  There are many different types of pension plans.  Please connect with your personal finance guide for the “less broadly used” retirement plans:

• Money Purchase Pension Plans
• Deferred Profit-Sharing Plans
• Savings and Thrift Plans
• Employee Stock Ownership Plans
• Stock Bonus Plans
• Simplified Employee Pension Plans
• Individual Retirement Account Based Plans

The difference between pension plans (which are becoming obsolete) and these other retirement vehicles is where the investment management responsibilities lie.  With pension plans, the sole responsibility of managing the money is on your company (which is also why they are eliminating these plans to avoid taking on that risk).  With 401(k)’s, IRAs, etc, the responsibility is on you with aid from your employer.  These 401(k)’s and IRAs are increasingly becoming the retirement plans that the majority of people use to help them achieve their financial goals farther down the road.  The type of plans you are offered differ on your employer and industry.

We know this can all be confusing but we can’t stress how important saving for retirement is and saving early! You know you will eventually want to go swelter in the Florida humidity and PRETEND it is cool, while eating dinner at 3pm, Mr. and Mrs. Seinfeld.  Retirement savings are very important, considering the baby boomers are depleting the Social Security money.  Let’s look at a basic example of two investors who both make $45,000 a year and contribute 6% of their salary (with no employer match) and continue to do this till they are 65 with the same salary.  Investor #1 starts saving at age 22 while Investor #2 starts saving 10 years later at age 32.

That 10-year jump start on Investor #2 saved Investor #1 $272,657 more for her retirement!

Your retirement plans are also vehicles for investing. You can typically invest your retirement money in mutual funds, ETFs, or less commonly, stocks and bonds.  You will want to read up on our investing content to learn about diversification of your retirement money.  Always feel free to set up an appointment with your personal finance guide to discuss.