Making Sense of Retirement Planning

Learn Your Retirement Options

There are two main types of formal retirement savings—Individual Retirement Accounts (IRAs), and employer-sponsored retirement plans, which include traditional pension plans and defined-contribution plans, such as 401(k) and 403(b) plans.

“A 401(k) is the most common plan that is funded by employee contributions and [often] matching contributions from the employer,” says Bob Carlson, author of The New Rules of Retirement: Strategies for a Secure Future. “The major attraction of these plans is that the contributions are taken from pre-tax salary, and the funds grow tax-free until withdrawal.”

Participants in a 401(k) plan generally have a number of different investment options, usually from a menu of mutual funds. These funds typically include a money-market fund, bond funds of varying maturities—short, intermediate, long term—and various stock funds.

“I started working full-time with a credit-card company four years ago,” says Donald Eggers, 29, of Rye, NY. “My company matches my 401(k) savings up to 6%, and until a few months ago, I never even put one dollar into my account. I started thinking about it after talking to some friends, so I met with an advisor at my local bank and he explained why it was important for me to start. Now I have 12% of my salary going in.”

Cullinane has seen hundreds of cases like Donald’s. “You really need to take the time and see what your company offers and take advantage of any matching to its fullest,” she says. “When you are just starting to plan, this is important. It could also affect you if you are looking for a new job or negotiating a new contract. You should know what’s out there for you.”