As you approach retirement, it’s essential to start thinking about how you’ll generate income for retirement. Social Security will provide some income, but it won’t be enough for many people. That’s where a pre-retirement pension account comes in.
A pre-retirement pension account is a retirement savings account that allows you to save for retirement and receive a tax break on the money you contribute. The account is typically used with Social Security and other retirement income sources to provide a comfortable retirement lifestyle. There are several benefits of having a pre-retirement pension account:
Tax Breaks
As you already know, tax is one of the significant financial challenges Americans face in retirement. A pre-retirement pension account can help you reduce your taxes in retirement by allowing you to contribute money on a pretax basis. The number of funds you contribute to your account will be deducted from your taxable income, lowering your overall tax bill.
In addition, the money in your account will grow tax-deferred, which means you won’t have to pay taxes on the account’s growth until you withdraw the money in retirement. This can help you maximize the growth of your account and give you more money to live on in retirement.
Income in Retirement
A pre-retirement pension account can provide a source of income in retirement. Then, when you retire, you can choose to take regular distributions from your account or leave the money in the account to grow tax-deferred.
If you decide to take distributions from your account, you’ll have to pay taxes on the money you withdraw, but the funds can help supplement your other retirement income sources. And if you leave the money in the account to grow tax-deferred, you can use it as a source of income in retirement or leave it to your beneficiaries.
Flexibility in Contributions
A pre-retirement pension account allows you to contribute as much or as little as you want. You can start small and increase your contributions as your income and financial situation allow. And if you need to take a break from contributing to the account, you can do so without penalty.
You can choose to skip contributions to your account for a year and stop contributing to the account altogether. This flexibility can be helpful if you experience a financial setback or need to take a break from saving for retirement.
No Penalty for Early Withdrawals
Unlike some other retirement accounts, there’s no penalty for taking early withdrawals from a pre-retirement pension account. This means you can access the money in your account if you need it for an emergency expense.
However, an early withdrawal from your account will reduce the amount of money you have available for retirement, so you should only take an early exit if necessary. Therefore, it’s generally best to leave the money in your account to grow tax-deferred until you retire.
Health Coverage
It is common for individuals to consider insurance for health coverage. However, depending on the state in which you live, this may not be an option. A pre-retirement account can help you pay for health insurance premiums in retirement.
If you’re self-employed or your employer doesn’t offer health insurance, you can use the money in your account to pay for health insurance premiums. This can help you maintain your health coverage in retirement and avoid paying for expensive individual health insurance plans. If you’re not too sure about which insurance to go for, you can compare insurance in Super to know more.
Provision for Early Retirement
There’s a possibility that you might retire earlier than you planned. For example, you’ll be forced to retire early due to health problems or a job loss. Or perhaps you’ll want to retire early to enjoy your retirement years.
If you have a pre-retirement pension account, you can use the money to help support yourself during your early retirement years. This can give you financial security and peace of mind knowing that you have a source of income if you retire early.
The bottom line is that a pre-retirement pension account can be a valuable tool for saving for retirement. Consider opening a pre-retirement pension account if you’re approaching retirement and don’t have a retirement savings plan in place. It could make a big difference in your retirement lifestyle. Also, this account can give you peace of mind knowing that you have a plan in place to help you generate income in retirement.
AUTHOR NAME : ALISON LURIE