basic retirement terms

19 Jul

Understanding Retirement: Basic Terms You Need to Know

Understanding Retirement: Basic Terms You Need to Know

When you first begin researching retirement options, it can feel like you stumbled into a world of its own. Understanding what’s best for your retirement plan begins with first understanding the basic retirement terms you need to know.

While this is by no means a comprehensive list, here are a few basic retirement terms you need to know to begin understanding retirement planning, saving and investing.

401(K)

The well-known 401(k) is often a person’s first introduction to the world of retirement planning. While the name 401(k) can seem intimidating, it’s simply named after its section of tax code.

This retirement savings program is a basic, employer-funded savings tool that allows you to schedule and make regular contributions to your retirement account. These contributions compound and grow tax-deferred (see below).

Individual Retirement Account (IRA)

IRA’s are powerful retirement savings pathways typically paired with a 401(k) that offer specific tax advantages. There’s the Traditional IRA, which allows you to make tax-deductible contributions year after year while deferring taxes until you begin taking out distributions.

Its counterpart is the Roth IRA, which allows you to pay taxes up front, even as you make contributions, instead of deferring tax payments until retirement.

Certificate Deposit and Share Certificate

A certificate of deposit (CD) is a long-term savings option offered by traditional banks, while a share certificate is the same savings option offered by credit unions.

With a traditional savings account, you have the freedom to deposit and withdraw funds regularly – in return for that freedom, you receive a lower rate of interest. With CD’s and share certificates, you receive a higher rate of interest, but agree to keep your money deposited for a specific period of time – anywhere from a few months to decades.

Have any questions regarding your retirement options? There’s a team of financial advisors waiting to support and guide you here at Signet! Just give us a call at 270-443-5261.