How can you be sure that you’re planning for retirement the right way?
It seems like a given, but without a proper strategy, retirement might just be a pipe dream. With uncertain pension and a shifting economy, you need to take control of your own future.
But where do you even start?
Let’s look at a typical pension retirement plan, the one we’ve come to expect, compared to a self-defined plan, the one we can direct ourselves.
The Old-School Pension Plan
Pensions were created as a way to pay into a system or company in order to reap a certain amount of money for the rest of your life. Unfortunately, pensions have become unpopular or infeasible – especially in large industries like auto, airline, and even the government – because of the high expenses to keep that plan afloat and elimination of employees due to technology. It requires new employees to contribute into the system to pay for those who are retiring.
Problem is, once you have more retiring workers than new workers, the pension plan fails. The more streamlined and efficient the industry is, the less manpower it will need. The large Baby Boomer generation has begun to retire and they’re effectively bleeding the pension system dry without enough younger employees there to pick up the slack.
You could pay into a pension plan your entire working life and be unable to draw from it when it’s your time to retire and cash out.
So what can you do when a pension isn’t there to catch you?
The Self-Defined Benefit Plan
Develop your own retirement strategy that isn’t based on a large-scale, corporate mentality.
The IRS has something called a self-defined or defined benefit plan, which you can use to create your own pension. It can be funded, controlled, and directed by you personally in the same way a company would do it. In fact, one of the ways to get a defined benefit plan started is to form a company of your own. It’s not as difficult as you might think. Just be sure to double-check with the IRS and your state on the specifics.
The beauty of this plan is that you know how much you’re getting (defined benefit). It has the potential to grow very quickly, you can also use it with a business of any size, and you can have other retirement plans working for you alongside it.
It is one of the more complex retirement strategies so it would help to do your homework or seek professional assistance.
You also might want to look for a mutual company, like New York Life or MassMutual, to create a life insurance plan that funds your defined benefit plan. If that sounds tough, don’t worry, I’ll be covering that in future articles.
Don’t Get Overwhelmed
If you’re feeling out of your depth, the key here is to become informed. Educate yourself on these things and you’ll feel more in control. Getting a grasp on a self-defined benefit plan means a retirement strategy only you are responsible for, but one that you can rely on. Let us know if you have any questions.
Copyright © The Hartley Law Group. All rights reserved.
The Hartley Law Group
636 Cedar Road, 2nd floor
Chesapeake, VA 23322