The First Questions You Should Ask Your Employer About Your Retirement Plan

by Hank Coleman

You should fully understand your employer’s retirement plan in order to maximize the amount of money you will have to live off of in your retirement. You need to know what entitlements you will receive in your Golden Years.  Knowing your plan inside and out will make your life a lot easier later in your career and will set you up for retirement success. So, if you are enrolled in a retirement plan at work, make sure you clearly understand how it works. 

iStock_401kXSmallStart Reading.  Get educated about your plan. Do not depend on anyone to tell you about what your company’s plan offers. And, do not trust your coworkers either. Many are just as clueless as you are and have not read the plan’s materials either. For starters, get a copy of your employer’s handbook outlining the provisions of your retirement plan’s benefits. Have any thing you do not understand explained to you. Does your employer match your contributions? Are your contributions made in before-tax or after-tax dollars? Is your spouse covered by your retirement plan’s benefits should you die before you retire? Many plans do not allow the surviving spouse rights to a pension until his or her deceased spouse reaches the age of retirement. 

Can You Take It With You? Take into consideration how being fired or being laid off may affect your rights that the rights to your money. How long does your investments have to vest before you can transfer them to another employer’s plan or a third party investment? Does the retirement plan address disability before retirement?

How Are Benefits Calculated? Make certain you are knowledgeable about how benefits are calculated. Generally, defined benefits are founded on the number of years of service, contributions made by the employer, and wages. Other variables figured into calculations include years required for vesting and provisions for those individuals opting for early retirement. Some retirement plans can dramatically reduce benefits if an employee chooses to retire before a specific age. Some plans also have changed the rules to their plans, and older workers are grandfathered into older calculation methods. Make sure you know how your retirement money is calculated. You should also check if medical benefits are offered upon early retirement as well. Also, find out if your retirement plan provides for an increase in the cost of living every year or every coupe years. A plan without an adjustment for cost of living increases will diminish over time thanks to inflation.

Once you better understand how your retirement plan at work operates, you can see what other retirement plans may best supplement your current plan. For example, a Roth IRA can offer you and your spouse income after retirement whose capital gains and distributions are completely tax free. In addition, there is no limit as to when you must stop making distributions. Therefore, you can still continue to invest after retirement and help delay when your money will run out. Also, you may save more money if you opt, for instance, to buy life insurance to cover your spouse upon your death versus, say, selecting the coverage at work. If you understand your retirement plan at work and how it operates, you will be better able to survey other retirement options such as a Roth IRA, traditional IRA, mutual funds, annuities, and life insurance.

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