Santa Barbara Retirement Planning
Santa Barbara retirement planning starts with taking some time to learn all you can about what types of plans are available from your employer. That's why the first step in your Santa Barbara retirement planning is to do some research, which will help residents of this Southern California city prepare for the future.
Types of Retirement Plans
The first step in your Santa Barbara retirement planning is to find out what kind of retirement plan your CA employer offers. According to the U.S. Department of Labor, there are two major types of plans: Defined benefit and defined contribution.
A defined benefit plan, funded by your employer, promises Santa Barbara residents a specific monthly benefit at retirement. This pension plan may guarantee a specific amount each month, but more often your benefits are calculated based on your salary over the years and the number of years you worked for that CA employer. For example, your benefit might be equal to 1 percent of your average salary for the last five years of employment times your total years of service, Labor officials explain.
A defined contribution plan, on the other hand, does not promise a specific benefit amount. Instead, as part of your Santa Barbara retirement planning, you contribute a certain percentage of each paycheck to an individual account. A 401(k) is the most common, but California employers also may offer a 403(b), Simple IRA, Simplified Employee Pension Plan (SEP), employee stock ownership plan (ESOP), or profit sharing plan.
An advantage in your Santa Barbara retirement planning is that your employer may match your contributions, up to a certain amount, which will make your savings grow faster. Your contributions also are taken out before taxes are calculated on your salary, so you will pay less in taxes with each paycheck.
With these "personal" accounts, Santa Barbara workers are responsible for choosing how much to put in each paycheck, as well as how these funds are invested. An important thing to know for Santa Barbara residents is that the value of your account depends on how much is contributed and how well the investments perform. When you retire, you receive the balance, which reflects your contributions, investment gains or losses, minus any fees.
While most employers offer a California retirement plan, it is not required by law, Labor Department officials note. This is important to know in your Santa Barbara retirement planning because your employer could decide to stop offering the plan. The good news, though, is that the defined contribution plan is your personal account, so you can manage it and continue contributing to it as part of your Santa Barbara retirement planning without your employer's input.
The next step is to find out when you can start participating in your CA company's plan. Rules vary, so you need to check with your plan administrator or review the Summary Plan Description to learn your plan's requirements. It may require you to work for the company for a certain period of time before you can participate. There often is a certain amount of time you must be in the plan or working for the company before you earn the right to your benefits. This is often referred to as "vesting."
Some Santa Barbara companies may require you to work there for a year before you can begin contributing to a retirement plan, while others will allow you to sign up on your first day on the job. Some plans are based on the calendar year and only allow people to sign up during an "enrollment period." As part of your Santa Barbara retirement planning, find out the soonest you can begin saving and then make sure you make that deadline. If you miss the enrollment period, you may have to wait another year to begin.
Some plans enroll employees automatically. In fact, there is a push on at the federal level to increase automatic enrollments, with officials hoping this will help more Americans focus on their retirement planning. A certain percentage of each paycheck is automatically deducted and put into a predetermined investment vehicle, unless you opt out of the plan, Labor officials explained.
Get Help Planning
Santa Barbara residents have a lot to learn to ensure their financial futures are secure. As part of the planning process, Santa Barbara workers may want to consult a professional financial planning specialist who can help them navigate the often confusing world of 401(k) plans, IRAs, or pension plans. The advantage to finding a professional is that this person will have their finger on the pulse of what's going on as far as tax or law changes at the federal level, which could impact your financial planning, as well as keep an eye out to ensure your Santa Barbara retirement planning is on track.