Who Gets Paid Retirement Money?

Personal Savings

Your personal savings generally include money that you save personally. This money is money from a 401k plan, an IRA or some other personal retirement account. You invest money in an investment account which is shielded from taxes. At retirement, you make withdrawals from your account. These withdrawals are taxed at ordinary income tax rates for traditional accounts. The money is withdrawn income tax-free from Roth accounts.

A private pension is a pension plan from an employer who is not the government. The pension plan normally promises specific benefit payments. Pension plans of this kind must invest in secure investments. While not all investments must be guaranteed, the pension must ensure that the payments received will be enough to pay the promised benefits at retirement. Some pension plans use a 412i structure in which all pension proceeds must be invested in fixed life insurance and annuity policy contracts. This guarantees the pension investment returns, insures them and makes sure that all pension promises are met.

A public pension plan is a plan that is funded by a local, state or federal government. These pensions are funded with tax dollars. The pension may be fully funded or unfunded. A fully funded retirement plan is a retirement plan in which contributions are made that equal or exceed the actuarially required pension contribution requirements. An unfunded pension promises future benefits but does not fund the pension plan. Instead, it relies on future tax receipts to fund pension benefit payments.

Social security is a government welfare program functioning as social insurance. The insurance guarantees a payment to you in your old age. You must have worked at least 40 quarters of covered employment during your lifetime paying social security tax during that time to qualify for benefit payments. You may elect to take benefit payments at a reduced rate as early as age 62. Full retirement age, for social security purposes, depends on the year in which you were born. Delaying your retirement earns you additional income from the social security system.