retirementplan

Retirement plans are financial arrangements intended to provide income after retirement. They are typically funded during working years through employee contributions, employer contributions, and investment returns, with the aim of generating retirement income and managing longevity risk.

Types: Defined benefit plans promise a specified retirement benefit based on factors such as salary and years of service. Defined contribution plans base benefits on the contributions made and the investment performance of the plan's assets, with the eventual retirement income determined by account value. Hybrid and other arrangements combine elements of both approaches.

Funding and management: In defined benefit plans, the employer generally bears the investment risk and funding obligations. In defined contribution plans, the individual assumes the investment risk and controls contributions within plan limits; plan sponsors and fiduciaries oversee administration and fees.

Tax treatment and withdrawals: Many retirement plans offer tax advantages, such as tax-deferred growth or tax-free qualified withdrawals. Contributions may be made on a pre-tax or after-tax basis depending on the plan type. Withdrawals before a specified age or outside plan rules can incur penalties and taxes.

Planning considerations: Eligibility and vesting rules determine when benefits become payable. Plans may be portable between employers, include investment options with varying fees, and impose minimum distributions or other withdrawal rules. Completing a plan requires balancing growth, risk, fees, and retirement goals.

Global context: While retirement plans have different names and details in different countries, many share common purposes: to provide a predictable income source, to encourage saving, and to manage age-related financial risk.