A Confident Retirement Journey

  • When approaching retirement age, investors must start thinking about how to make their money last.
  • One way to do this is by minimizing the amount of money you’re paying in fees.
  • Fees are an expense that investors do not pay directly, but that they pay for indirectly through lower returns.

Retirement can be a scary thought for a lot of people. The thought of leaving a career, a lifestyle, and a paycheck behind can be frightening. However, it can also be a very exciting time.

two blue beach chairs near body of water

Immediate vs. Deferred Annuities

Immediate annuities are a type of fixed annuity sold by insurance companies. With an immediate annuity, you typically get a guaranteed stream of income for the rest of your life, no matter how long you live. In most cases, the insurance company will calculate a payout of a guaranteed minimum income (GMI), which is a certain level of income you will continue to receive, even if you are no longer living.

The insurance company typically calculates a payout based on a percentage of your premium, usually between 75% and 85%. For example, if you invest $100,000, the insurance company will pay you a payout of $75,000.

Individual Retirement Account (IRA)

A traditional IRA works by depositing money into an individual retirement account that earns interest over time. The money grows tax-free until the individual withdraws the funds. The account holder must be younger than 70 1/2 years old or have a qualifying disability.
The contribution limit for 2021 is $6,000 for a single taxpayer and $7,000 for a taxpayer who is married and filing jointly.

Roth IRA

The Roth IRA generally offers fewer contribution restrictions than a Traditional IRA, plus tax-free distributions.
With a Roth IRA, your contributions grow tax-free. You get tax-free withdrawals in retirement, provided you haven’t taken any nonqualified withdrawals. So, you won’t need to pay current taxes on those distributions, and no taxes are due when you withdraw them.

Traditional IRA

Traditional IRAs are the most popular type of IRA and have been around since 1974. The contributions you make are tax-deductible, and the money grows tax-deferred until withdrawn in retirement.

Roth IRA

Roth IRAs are another popular type of IRA, and were first introduced to open up the IRA to lower income earners. Contributions to a Roth IRA are not tax deductible, but the money grows tax-deferred, and distributions in retirement are tax-free.

Rollover IRA

One of the great benefits of a rollover account is that you are not required to take any minimum distribution (RMD) from your IRA once you reach age 701⁄2. This saves the IRA owner from having to pay tax, and it reduces his or her Adjusted Gross Income (AGI).


401(k) plans can be a great way to prepare for retirement. But if you’re not careful, you could wind up with a plan that leaves you with less money than you would want.

Select an investment company. An ideal investment company is one that offers a broad selection of investment choices. You should also be able to choose from among various funds that invest in stocks, bonds, mutual funds, and money market instruments.


A 403(b) plan is a retirement plan for employees of certain tax-exempt organizations, such as public schools, and non-profit organizations. The employees are allowed to defer a certain amount of their salary into the plan.

403(b) plans can be offered either as a tax-sheltered annuity or a tax-deferred annuity. A tax-sheltered annuity is a contract issued by an insurance company in which the employee makes regular deposits into the plan. The employee decides the amount to be deposited, and the insurance company invests the money on behalf of the employee. The income that is earned on investments is not taxed until the employee withdraws money from the account.

A tax-deferred annuity is also offered by an insurance company, but regular deposits are not required. Payments are made only at the time of withdrawal.


The 457(b) plan is similar to the 401(k) plan in that it also defers taxes. However, with the 457(b), employers are allowed to put an additional $18,500 of pre-tax income into the account. Also, with 457(b) plans, employers can sponsor multiple plans for their employees.


A SEP IRA is an individual retirement account (IRA) that allows self-employed individuals and small business owners to set aside money for their retirement. SEP IRAs are easy to set up and require little paperwork. With SEP IRAs, you can contribute up to 25% of your annual profit to your IRA account.


A SIMPLE IRA is a retirement plan for small businesses. SIMPLE stands for Savings Incentive Match Plan for Employees.
With a SIMPLE IRA, you contribute a percentage of your salary or wages to an account set up by the employer. Your contributions are tax-deferred until you withdraw the money. You also receive a matching contribution (an employer match) up to a certain percentage of your contribution.

Defined Benefit and Money Purchase Plans

If you are enrolled in a defined benefit plan, your pension benefit is calculated using your age and years of service. The money purchase plan calculates your benefit by using your age, years of service, and your salary. Both plans use the most recent salary average to calculate your benefit, so consider taking a salary cut and request a lower salary average when you are close to retirement.

Money Purchase Plan

The Money Purchase Plan (MPP) replaces traditional defined benefit pension plans. It is essentially a defined contribution plan, except contributions are made on behalf of each employee. The employer can fund the plan by offering a contribution to each employee’s account. Employees can contribute as well.

Defined Contribution Plan

As you approach retirement, you will likely enroll in a defined contribution plan. It’s a tax-advantaged retirement plan that is different from a defined benefit plan, which promises to pay a specific monthly benefit at retirement. A defined contribution plan, by contrast, provides employees with a set contribution each year. These contributions are invested by the employee, and the employee chooses how to invest their money.

Because retirement benefits are typically calculated as the employee’s account balance on a certain date, defined contribution plans often allow employees to defer taxes until they withdraw funds in retirement. However, they also require employee contributions to be invested until the employee retires, at which time they may receive withdrawals.

The Bottom Line

Retirement should be an exciting time, but for far too many Americans, it is a time of great uncertainty and hardship. Although it’s impossible to predict the future, there are ways to plan for and protect yourself against the unexpected. With a little planning, and the knowledge gained through financial planning, you can confidently pursue your retirement journey.

About the author