A Look Into Important Terms For Retirement Planning

Creating a retirement plan that works for your long-term goals and financial background can be both an exciting and challenging process. In order to get the most out of your retirement planning efforts, it is important to gain a better understanding of how it works, and what terms you should be aware of. Below are some of the most important terms for retirement planning to understand when first beginning the process.

401(k)
One of the most common terms that you will hear with retirement planning is a 401(k). In its most basic terms, a 401(k) refers to an employer-sponsored retirement savings plan. It is commonly utilized through your employer, and helps to build a savings account for later in life. Each paycheck, a portion is added to your 401(k) account, and it is used towards investment opportunities. Your 401(k) can be transferred to other accounts after leaving a company, and account for a major portion of your retirement funds.

Matching Contributions
Matching contributions is another term that will be beneficial to understand when beginning retirement planning. Matching contributions refer to the contributions that are provided by the employer towards a savings account. Employers may match any contributions provided by you as an employee, as this can help you build your retirement in a more efficient manner. The contributions provided by your employer may differ by company, so it is important to get this information when starting a new job.

Individual Retirement Account (IRA)
Another well-known retirement plan is called an individual retirement account, or most commonly known as an IRA. An IRA is commonly known as another retirement account that is not completed through an employer. This retirement account is a great option for anyone who does not have access to an employer-based account like you may get through a 401(k).

Mutual Funds
Mutual funds refer to funds that are used to purchase things like stocks, bonds, or short-term debt. The biggest benefits of mutual funds are the diversity that they can bring to a person’s retirement savings, and can provide large return on investments when done correctly. What is important to know about mutual funds is that they typically require active management, so they should not be used for anyone that is not able to actively manage the account.

While these are some of the more common terms that you may hear with retirement planning, it is important to continue learning about the terms. Learn more about retirement planning by visiting Andrew Costa’s blog at andrewcosta.co.