In a nutshell, all retirement plans are designed to allow us to provide income later in life by saving/earning during our younger working careers. Yes, some people actually want/need to work until they are incapacitated; but most of us would like to enjoy a carefree time where we can do whatever we want–legally, of course. That said, there are two different types of employer retirement plans. The first is called a Traditional Pension Plan and it’s benefit depends on the number of years you work and your income level. The second is a Savings/Thrift Plan and it’s benefit is largely based on what you contribute and how successfully you invest that contribution. The subtle difference in these two plans is that in the Traditional Plan your employer takes the risk that plan assets will be adequate to pay your promised pension benefit. But in the Savings Plan, YOU assume the role and responsibility for adequate asset growth. THIS IS A HUGE DIFFERENCE…The unfortunate truth is that many Savings Plan participants are not investment-oriented and they make decisions that do not stand the test of time. They react to news stories, the advice of a friend, basic conservative fears or simply a disinterest in monitoring their account. These actions all can have dire consequences that go unnoticed almost to the point of retirement. In other words, many Savings Plans members do not realize the failure of their inattentiveness until it’s too late. A word to wise…get some basic understanding of spreading investment risk before you embark on a life-long journey into the investment jungle. If you don’t you may never find that end-of-the-rainbow time when your working days are over.
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