By Alex Williams
Retirement awaits us all sooner or later and it’s never too early to start planning for it. Sometimes, social benefits received from a pension aren’t enough to ensure that you’ll enjoy your golden years. That’s why people need to start saving as early as possible and have an additional fund waiting for them when they are ready to give up work. However, most people don’t really know their options when it comes to retirement plans and which one is the best for them. Also, they don’t know how much they should save to secure enough finances for their old age.
Working people spend most of their life earning their pension so they can sit back and relax after they retire. That’s why it’s crucial for a company’s HR department to become involved in employee retirement plans and help them understand which options they have. This is especially true if employees are beneficiaries of the employer retirement plan. Here are a few reasons why HR should be involved in employee retirement plan.
Educate employees about responsibility
Most companies nowadays include retirement benefits for their employees. That means that each employee is entitled to an employer retirement plan. HR department should educate employees about how corporate retirement works and what’s the responsibility of both employers and employees. For instance, the most common employer retirement plan is the 401(k) plan. With it, employees obtain an account with tax benefits, where a portion of their taxable income is deducted and invested into their retirement savings.
Aside from the income deduction, employers may make additional monthly contributions. However, income deduction and employer contributions may not be enough for secured retirement. That’s why employees should be aware that it’s also their responsibility to make sure that they have enough savings. Employees can make their own contributions to the 401(k) plan. The difference is that the traditional 401(k) plan allows you to make pre-tax contributions, but withdrawals are taxed, while the Roth 401(k) plan allows you to make post-tax contributions, where withdrawals aren’t taxed.
Encourage employees to have their own retirement plan
If there is no 401(k) plan or if it’s not enough to secure a solid retirement, an HR department should inform and encourage employees to make their own plans. Employees that make their own retirement plans should start saving early on – as soon as possible in fact. Ensuring retirement on your own is difficult and you’ll have to sacrifice some of the life’s luxuries in order to have enough money in the end. Furthermore, when personal savings are the main source for pension, employees should save at least 10 to 15 percent of their income each month.
There are accounts that are especially suited for personal retirement plans, such as individual retirement accounts (IRAs). Just like the 401(k) plans there are traditional and Roth IRAs. Traditional IRA allows you to make tax-free contributions, whereas withdrawals are taxed as income. However, not every income is eligible for deduction.
For example, in the U.S. if you earn less than $61,000 your contributions are deductible. If you earn between $61,000 and $71,000 only a fraction of your contributions is deductible and if your income is above $71,000 your contributions aren’t eligible for deduction. As for the Roth IRAs, contributions are not deductible. On the other hand, withdrawing from your Roth IRA is tax-free, which means you won’t be subject to income tax on your withdrawals once you retire.
Advise employees when to take social benefits
People are entitled to social benefit income once they retire. The amount they’ll earn from their pension will depend on their retirement plan and the age at which they’ve retired. Therefore, age isn’t just a number when talking about social benefits and pension. An HR department should advise employees about the right time to retire because retiring at a certain age entitles you to some benefits.
An HR department should explain age retirement to employees and let them take a reliable age pension income test so they can better understand the benefits. For example, people can legally retire at age 62 to 70. However, that eight-year span will determine your benefits or lack of them. Simply put, at age 62 you’ll be in early retirement and you’ll have reduced benefits. At age 65 to 67 you’ll be at full retirement and you’ll have full benefits. Also, if you retire at age 70 you’ll be in so-called late retirement and you’ll be entitled to extra benefits.
- Early retirement – You’ll receive 25 percent less benefits than in full retirement.
- Full retirement – The most common age for retirement where you receive full benefits.
- Late retirement – You’re able to receive up to 32 percent extra benefits.
Depending on your savings, length of employment and your income you’ll be able to receive certain income from your pension. In addition, the age at which you retire is also a determining factor when calculating pension income. An HR department should help their employees familiarize themselves with all the conditions required for a solid retirement.
Without a good retirement plan, your golden years may not be as enjoyable as you may think. That’s why HR departments should educate their employees about the possibilities and options for a solid retirement.
My name is Alex Williams. I am a journalism graduate, and a rookie blogger trying to find my luck. Blogs are the perfect opportunity for presenting yourself to wider audience, getting the chance to showcase my expertise and receiving recognition. I am a regular contributor at Bizzmark Blog“http://bizzmarkblog.com”.