When you own a business, you know that one of your most valuable resources is your employees. And one way you can help take care of that resource is by helping to educate them about retirement. It may be a long way off, but it’s never too early to think ahead and start preparing for retirement. But where to start? Here are a few pointers.
What Does Retirement Really Mean to Your Employees?
First off, “retirement” may mean different things to different people. Granted, most people take it to mean the point at which you leave work entirely and live thereafter off of a fixed income, usually a mix of savings and investment options. However, that may not be the goal of all your employees; some may seek to work part-time, or simply find a different field for their later years. Whatever their retirement objectives may be, it’s important that your employees can articulate what their retirement goals will mean for them. No two retirement goals will be the same!
Types of Retirement Plans for Your Employees
A retirement plan doesn’t do much good if your employees don’t even know what their options are! Below are some examples; whatever retirement plans you may have available, make sure your employees know what they are, and what they mean. Specific definitions and limits are listed on the IRS’s website. When choosing a retirement plan, it is always best to consult with a professional in order to determine which will best suit your employees’ needs. What assets are considered taxable and when, how much they can contribute, knowing when they can withdraw…all of these are variable that should be considered when an employee chooses a retirement plan.
- Simple IRA
- SEP IRA
- 401(k) Plan
- 403(b) Plan
- Health Savings Account
Pros and Cons of Employee Retirement Plans
If you are considering whether or not establishing an employee retirement plan is right for you and your business, there are some things you should consider in conjunction with a tax professional.
There are many advantages to you as a business owner when you set up employee retirement plans and options, which may include one or several of the following:
- Employer contributions are tax-deductible
- Assets in the plan grow tax-free
- Flexible plan options are available
- Tax credits and other incentives for starting a play may reduce costs
In addition, your employees may benefit as well! A retirement plan set up by their employer can mean:
- Contributions can reduce current taxable income meaning more money per paycheck
- Contributions and investment gains are not taxed until distributed
- Payroll deductions can make contributing to their retirement plan easy
- Compounding interest over time allows small, regular contributions to grow
- Retirement assets can be carried from one employer to another
Of course, with the pros must come the cons. Setting up a plan can be expensive, and you will definitely need to ensure that you are operating within strict guidelines. The help of a professional will be necessary, as will detailed bookkeeping. While not entirely prohibitive, these are definitely items to consider when setting up employee retirement options.
Announcing an Employee’s Retirement
When the day comes for one of your employees to retire, there are a few things you should consider. First of all, ideally he or she will have given you some lead time in order to prepare. Six weeks is generally considered adequate for lower-level workers, but for senior-level employees or those that are harder to replace, three to six months will make it easier for you to find a replacement. Use this time to work with your human resources department, if you have one, to help your retiree know what to expect. He or she might need additional education on budgeting, withdrawals, and tax situations that could require the help of a professional.
When a retirement date is determined, even in this age of social media and e-mail, the best way is to announce it is in person. Most people appreciate hearing this sort of news in a group, and it also gives you the opportunity to field questions, should your employees have any. After you have broken the news to close colleagues, a follow-up e-mail is appropriate. In it, be sure to highlight the employee’s achievement and contributions to the company, and offer a time to celebrate their upcoming retirement. After all, it’s a big milestone! Your employees should be given the chance to celebrate their departing colleague and send him or her off with well-wishes for the future.
Thinking Beyond the Traditional Retirement Plan
While certainly the most common, IRAs and 401(k)s aren’t an employee’s only option when planning for retirement. In fact, it’s rarely a bad idea to have savings opportunities beyond a traditional retirement plan. Farm Bureau offers multiple financial services that can provide supplemental income in retirement. To learn more about how you can maximize your future, connect with a Farm Bureau agent!