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Employee Retirement Plan
i am filling out papers for my new job and there is one place where it asks if I want to opt in to the ERP or not? What is an "employee retirement plan" exactly? Does it cost me something? I mean if it didn't cost money why wouldn't everyone do it? I am so confused. This is my first "real job" with benefits and stuff and I am lost. Can you help me understand what to put here please?
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Retirement plans are very important to utilize. Many young people fail to know its true value and they will have a rude awakening one day when they reach 65 and retire and find out they only have social security there to help then survive, that's if social security is even around when we retire LOL...ERP is for employment retirement plan. I suggest you opt in. The other answer is correct as the traditional companiees used to have what were called pensions as a supplement for those people who work at that company for 20 years or more or the required number of years would recieve financial benefits for when they retire. Now most companies do not have pensions anymore and the new benefits are called ERP usually consisting on a 401K or 403b. These are practically the same however the difference is that 403b are for non-profit organizations usually hospitals, schools, etc. Other things are different for government places and etc. So basically what these plans allow you to do are to contribute a small amount of your paycheck (whatever allotment) you put down for and they pull it tax free and put it in this retirement account. The way it works is that this money is placed into whatever funds of the stock market. So basically its a form of investing and it does have the ability to gain or lose. The beauty of it is that if most are included in to what are called mutual funds which are funds comprised a hundreds of companies in a specific fund. This where you need to learn basics of the stock maret, such as what are stock, what are bonds, etc. Then depending on the funds you chose, which I suggest that you diversify with both stocks and bonds that it will gain over years via a term called compound interest. What this basically means is that say you invest 100 dollars. If you invested this money in your retirement account and say that the stock did really good that year and made a 10% increase for that year, you would make 10 dollars. So now you have 110. Now that may not seem like much, but think of it this way. If you take that same 110 and the next year you also add another 100, and the stock or fund you are in does really good again and makes 10% again then not only do you get the 10% on the new 100, but you get 10% on the 110. See how this adds up quick. Then if you expand contributing money to it for 30 to 40 years until you retire, you will have a pretty decent amount of money. The trick is to contribute while you are young so that way the compound interest has time to build over the years. The other trick is to diversify yourself in the right funds. Chose a mixture of stocks, bonds, and treasuries. The younger you are the bigger change or risk you can take because you have more time on your hands that if you lose money, you can gain it back. That's why I suggest you do it. Risk level varies on different people. Some are very aggressive and some are very very conservative. The younger you are the more aggressive you can be. The old the less agressive you should be. So what makes a person agressive is based on the risk you take by the types of funds you chose. Chosing more stocks is vary agressive. Stocks rise and fall like steep roller coasters. Bonds are little bit less. Treasuries are like nothing, but at a young age you don't want to cut yourself too short. You want to risk some and allow your chances to make some money. So if you are young you should chose more in stock and less in bonds and treasuires. As you get older you should change your values to more bonds and less stocks. Now to understand funds, you have to know what you are looking at. Stocks can include specific sectors, large cap, medium cap, small cap, growth funds, large, value, blah blah blah. I can go on and on. Bonds have the same thing. You need to review what everything is. Know what you are investing in. Im not going to tell you what to chose, but my biggest suggestion is that you diversify between different types of stock and bonds and look for someting called no load funds with low fees. I persoanlly am in things called index funds. Im what you would call a passive investor in which I don't sit there and sweat or lose sleep over what the stock market is doing. I did enough research to find funds that had a good history, no fees, no loaded funds, and pay a decent form of dividend back. If you need help with these things you should check out some books in the library and read the internet. You can also go to an advisor and they will help you to understand what is your risk level and give you suggestions. Just be careful they are not getting you into a fund that takes more fees and money from you.
The ERP is a good benefit to have. There may not be social security by the time we retire, so take advatange of it. The younger you are the better. You will need this income in the future. As for the amount to contribute, I do beleive the best is at least up to matching. Like the other answer suggested that the company matches 3%. What this means is that if you chose to allocate (give money) taken from your paychecks then whatever you put the company will match you up to the point of what their policy states. Some companies do 1-2%. Rule of thumb is usually 3% but at one point I know someone's was doing 6%, but that's almost unheard of today. So basically what would happen is you can do a certain dollar amount per a paycheck or a %. Do the amount of % for full matching and you should be well on your way, because if it is 3% then you automatically get a 6% contribution. I only say do this if you are out of debt though. If you are in debt wait and get out of debt first. Especially if you have credit card debt. what happens is that most credit cards have a apr of 20-30% which is way more than what you would make by investing in the market. So if you pay off you debt, then you automatically give your self two important things, a 20 to 30% gain on your money by not having to pay it to credit card companies and you have freed your biggest means to creating wealth, which is your income. If you are debt free (means no debt, zero, zilch, nada) then the rule of thumb is to do 10 to 15% of your income towards retirement, so if you company is giving you a match of 3% then your should only have to give 12%. The % is of your annual income. That meaning if you make 40000 a year and you give 10% you are giving out 4000 per year. The advantages of having this retirement fund is that it is also taken tax free, however when you retire you will then be taxed on everything. You can not withdraw this money before 59 1/2 years old otherwise you suffer huge taxes. Compound interest will help you and obviously the more you put in the faster the money can build. The reason to also give it is that it is tax free, so it decreases the amount you are taxed on and thus decreases the amount your considered to earn on a year. So if you made 40000 but put in 10000, then you are now placed in a lesser tax bracket as if your income was only 30000. They have another thing also called a roth ira. This is money that works like a 401k or 403b but it is money that is taken out and invested after it has already reached your bank account. That means it was taxed by the government already and etc. The plus side to this is that all the money in the builds in compound interest will not be taxed later, so its there for you. I suggest you talk to a financial advisor if you have questions.
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You'll want to find out exactly what this entails, but I can tell you what it means at my husband's company.
His company matches contributions up to 3% of his annual income towards a retirement savings plan. A lot of companies are opting to do this instead of a full-on pension (where they pay you a guaranteed income for a set amount of time). When you retire, you get access to this money.
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