Retirement plan - Financial definition
Concise definition of the term retirement plan
A retirement plan is a financial arrangement designed to provide individuals with income during their retirement years. These plans often involve regular contributions from employers, employees, or both, which are invested to grow over time.
Comprehensive definition of the term retirement plan
Retirement plans come in various forms, including employer-sponsored plans like 401(k)s in the United States, individual retirement accounts (IRAs), and public pension systems such as Social Security. These plans are essential for financial security in retirement, as they help individuals accumulate savings and benefit from potential tax advantages. Contributions are typically invested in a diversified portfolio of assets, including stocks, bonds, and mutual funds, to generate returns over time. For example, a 401(k) plan allows employees to contribute a portion of their salary pre-tax, with employers often matching a percentage of these contributions.
In many countries, government policies encourage retirement savings through tax incentives and regulations to ensure that individuals are adequately prepared for retirement. Additionally, financial advisors often help individuals choose appropriate retirement plans and investment strategies based on their risk tolerance, retirement goals, and time horizon.