Welcome to part one of our Retirement Series.
Over the next nine weeks, we will be diving deep into your employer-sponsored retirement plan. For the purposes of this series we will be talking about the 401(k). Some of you may have a 403(b) if you work for a nonprofit organization which is basically the same as a 401(k). We may use the terms interchangeably so, don’t get
scurred
. Both types of plans are called defined contribution plans because, you as an employee, are contributing a portion of your paycheck to your plan. Defined contribution plans are different then pension plans. Pension plans, also called defined benefit plans, are a plan in which your employer contributes on your behalf and, once you have satisfied a pre-determined length of service, you are eligible to receive income in retirement.
In a defined benefit plan (pension) you as the employee do not select your investments. Your employer is responsible for investing the entire pension pool so that they will be able to provide income to each of their participants in retirement. In a defined contribution plan (401(k)), the employee is responsible for selecting his, her, or their own investments. In fact, participants in a 401(k) have to make quite a bit of decisions regarding their plan such as:
- How much money should I contribute?
- How much will my paycheck be reduced by once I make my contribution?
- What investments should I choose?
- Am I choosing the best investments for me?
- How much of my contribution should I put into each investment?
- What should I do if the market goes down?
- Should I make a Roth contribution?
That’s a lot of responsibility.
Chillax
, we’re going to walk you through how to do all of it! In fact, consider this series your cheat sheet to your 401(k).
Your Savvy team is taking a break for Labor Day so we hope you'll enjoy the last of the summer sun and we'll see you next Thursday.
Have a great holiday Savvies!
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