RISKS IN RETIREMENT PLANSSavings Plans, Pension Plans, and Social Security
SAVINGS PLANS
401k: a retirement savings plan that is funded by employee contributions and (often) matching contributions from the employer
IRA: a retirement plan that allows you to contribute a limited yearly sum toward your retirement
SAVINGS PLANS RISKS
Living too long Lack of understanding (taxes) Withdrawal penalties Not guaranteed Unexpected Expenses
RETIREMENT AGE VS. LIFE EXPECTANCY
PENSION PLANS: TWO TYPES
Defined-benefit plan: the employer guarantees that the employee will receive a definite amount of benefit upon retirement
Defined-contribution plan: the employer makes predefined contributions for the employee, but the final amount of benefit received by the employee depends on the investment's performance
PENSION PLANS RISKS
Shortfall Assumption Company Bankruptcy Not personally managed Vested in the company
DECLINING POPULARITY OF PENSION PLANS
SOCIAL SECURITY
Government funded retirement plan offering monthly benefits based on past earnings
Not guaranteed Not sufficient for high earners Not personally managed Retirement Age
WORKERS PER BENEFICIARY
MARKET RISK
The risk that the organization’s ability to meet its objectives is compromised by fluctuations
in the market value of the assets held Inflation and Taxes Government Policies Economic Performance Interest Rate Risk Affects any type of retirement plan
HISTORICAL INTEREST RATES
IN CONCLUSION
All retirement plans have
some risk so it’s good to diversify!