Retirement Benefits
What Are Retirement Benefits?
Retirement benefits is the term that refers to money and other incentives an individual collects after their employment ends. These earnings, which typically include a portion of the worker's salary as well as employer contributions, are part of a financial planning effort to ensure the worker some income after they retire from work.
There are various types of retirement benefits. Some include a pension, which is a fixed monthly income for retirees. Others include healthcare plans or investment funds that provide returns for the former employee. Whatever type of plan you have should be defined in your employment contract.
What Are the Different Types of Retirement Plans?
Social Security is part of the American worker's retirement plan. The government program replaces a portion of your pre-retirement income based on your lifetime earnings. The amount, which is based on your highest 35 years of earnings, depends on how much you earn and when you choose to start receiving benefits.
The Employee Retirement Income Security Act, or ERISA, includes two plans – the defined benefit plan and the defined contribution plan.
Defined benefit plan vs Defined contribution plan
A defined benefit plan specifies a monthly benefit at retirement. This plan may be an exact dollar amount, or it may use a formula that takes salary and service into consideration. An example might be 1 percent of the person's average salary for the last five years of employment for every year with an employer.
For a defined contribution plan, the employee or employer (or both) pay into the employee's individual account – often at a set rate, such as 5 percent of annual earnings.
The employer typically invests these contributions on the employee's behalf. The account's value fluctuates according to the changing market value of the investments. Defined contribution plans can include profit-sharing plans, employee stock ownership plans, 401(k) plans, and 403(b) plans.
Other types of benefit plans
There are other types of plans that you may encounter or have. For example, military retirement benefits are available in most cases to military members who have completed 20 years of active service. The amount depends on whether the individual qualifies for active-duty retired pay or non-regular retired pay.
The Federal Employees Retirement System (FERS) offers federal retirement benefits to civilian government workers. It includes a basic benefit plan, Social Security payments, and the Thrift Savings Plan. The government agency withholds part of your salary for these plans and contributes to them as well. If you leave federal employment before retirement, you can take the funds in your Social Security and TSP accounts with you.
What Happens to Unclaimed Retirement Benefits?
Some people leave their job and lose track of their retirement plans. Suppose you are planning your retirement and want to gather any missing retirement savings. In that case, your first step is to write to your former employer's human resources department referencing your unclaimed retirement benefits. This could be included in your retirement letter, for example.
In some cases, you may need to work with a financial advisor or an attorney to claim lost benefits.
Timelines for Retirement Account Distributions
If your retirement funds are invested well in your former company's plan, you may be tempted to keep them there. However, you cannot keep retirement funds in your account for an indefinite time. You typically have to start making withdrawals from a retirement plan account when you reach age 70 and a half.
There are some exceptions. Due to the Setting Every Community Up for Retirement Enhancement Act or SECURE Act signed in 2019, if you reach age 70 on or after July 1, 2019, you do not have to make withdrawals until you are 72.
Withdrawals count as part of your taxable income except for any portion that was previously taxed, or that is designated as tax-free (such as withdrawals from designated Roth plans). In most cases, your required minimum retirement account distribution is the lowest amount of money you must withdraw each year. However, you can withdraw over the minimum required amount.
Download Your Free Retirement Letter Template
Helpful Resources:
HealthCare.gov - Pension (retirement benefit)
Insuranceopedia - What are Retirement Benefits?
U.S. Department of Labor - Types of Retirement Plans
US Army - Retired Pay For Soldiers
US News - What Are Unclaimed Retirement Benefits and How to Find Them
What Are Retirement Benefits?
Retirement benefits is the term that refers to money and other incentives an individual collects after their employment ends. These earnings, which typically include a portion of the worker's salary as well as employer contributions, are part of a financial planning effort to ensure the worker some income after they retire from work.
There are various types of retirement benefits. Some include a pension, which is a fixed monthly income for retirees. Others include healthcare plans or investment funds that provide returns for the former employee. Whatever type of plan you have should be defined in your employment contract.
What Are the Different Types of Retirement Plans?
Social Security is part of the American worker's retirement plan. The government program replaces a portion of your pre-retirement income based on your lifetime earnings. The amount, which is based on your highest 35 years of earnings, depends on how much you earn and when you choose to start receiving benefits.
The Employee Retirement Income Security Act, or ERISA, includes two plans – the defined benefit plan and the defined contribution plan.
Defined benefit plan vs Defined contribution plan
A defined benefit plan specifies a monthly benefit at retirement. This plan may be an exact dollar amount, or it may use a formula that takes salary and service into consideration. An example might be 1 percent of the person's average salary for the last five years of employment for every year with an employer.
For a defined contribution plan, the employee or employer (or both) pay into the employee's individual account – often at a set rate, such as 5 percent of annual earnings.
The employer typically invests these contributions on the employee's behalf. The account's value fluctuates according to the changing market value of the investments. Defined contribution plans can include profit-sharing plans, employee stock ownership plans, 401(k) plans, and 403(b) plans.
Other types of benefit plans
There are other types of plans that you may encounter or have. For example, military retirement benefits are available in most cases to military members who have completed 20 years of active service. The amount depends on whether the individual qualifies for active-duty retired pay or non-regular retired pay.
The Federal Employees Retirement System (FERS) offers federal retirement benefits to civilian government workers. It includes a basic benefit plan, Social Security payments, and the Thrift Savings Plan. The government agency withholds part of your salary for these plans and contributes to them as well. If you leave federal employment before retirement, you can take the funds in your Social Security and TSP accounts with you.
What Happens to Unclaimed Retirement Benefits?
Some people leave their job and lose track of their retirement plans. Suppose you are planning your retirement and want to gather any missing retirement savings. In that case, your first step is to write to your former employer's human resources department referencing your unclaimed retirement benefits. This could be included in your retirement letter, for example.
In some cases, you may need to work with a financial advisor or an attorney to claim lost benefits.
Timelines for Retirement Account Distributions
If your retirement funds are invested well in your former company's plan, you may be tempted to keep them there. However, you cannot keep retirement funds in your account for an indefinite time. You typically have to start making withdrawals from a retirement plan account when you reach age 70 and a half.
There are some exceptions. Due to the Setting Every Community Up for Retirement Enhancement Act or SECURE Act signed in 2019, if you reach age 70 on or after July 1, 2019, you do not have to make withdrawals until you are 72.
Withdrawals count as part of your taxable income except for any portion that was previously taxed, or that is designated as tax-free (such as withdrawals from designated Roth plans). In most cases, your required minimum retirement account distribution is the lowest amount of money you must withdraw each year. However, you can withdraw over the minimum required amount.
Download Your Free Retirement Letter Template
Helpful Resources:
HealthCare.gov - Pension (retirement benefit)
Insuranceopedia - What are Retirement Benefits?
U.S. Department of Labor - Types of Retirement Plans
US Army - Retired Pay For Soldiers
US News - What Are Unclaimed Retirement Benefits and How to Find Them