Retirement

ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement plans and establishes protections for consumers, including standards about disclosing plan information and rules regarding fiduciary responsibilities for the plans.

Social Security

A national benefit program funded by tax dollars to ensure economic security for those who can no longer work because of their age or a disability. Those who qualify for Social Security benefits receive monthly stipends based on their reported income.

SIMPLE IRA

SIMPLE stands for Savings Incentive Match Plan for Employees. Perhaps the best way to describe the SIMPLE IRA plan is as the little brother of the more robust but more costly 401(k) plan. Much like the traditional 401(k) plan, the SIMPLE IRA Plan allows for both employer contributions as well as employee salary deferral contributions.

Compound interest

The addition of interest to the principal sum of your retirement savings, or in other words, interest on interest. Compound interest rates grow faster than simple interest rates because they include all of the accumulated interest on your investments, allowing you to grow your wealth over time.

401(k) Retirement Plans

An employer-sponsored retirement plan that allows employees to add pre-taxed income to a retirement savings account. The funds will be taxed, however, once the employee makes a withdrawal from the account. Oftentimes, employers will also make contributions to the employee’s 401(k). 401(k)s are portable, so when an employee moves jobs their retirement account will go with them.

Inflation

Inflation refers to a general increase in prices and a decrease in the purchasing value of money. Inflation has a greater impact once you are retired and can't adjust your savings to accommodate the rising costs.

Defined benefit plan

A type of employer-sponsored retirement plan in which the employer guarantees a fixed payment amount each year of retirement, typically based on the employee’s salary and length of time in the position. Pensions are the most common type of defined benefit plans, and are attractive to employees because retirement benefits are guaranteed and employers generally bear all the risk. However, use of these plans has declined significantly with the rise of new retirement options.

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