Chapter 6, Problem 2AA

To determine

To explain:Thespecial methods that can be chosen by a person for saving purpose after retirement.

Explanation of Solution

There are special saving plans that can be used by people to have enough money after their retirement. These plans are as discussed below:

1. Pension plans: These are plans that a company provides for their workers after their retirement. Most common pension plan is 401(k) in which a specific amount from the paycheck of an individual is withheld with the company and the company provides that amount. This plan is helpful for saving taxes.

2. Keogh plan: This is a retirement plan for self-employed individuals. This plan allows to save maximum 15% of amount of income. This amount is deducted from the yearly taxable income of a person.

3. Individual Retirement Account (IRA): This is also a type of retirement plan where a person who earns less than $30,000 can contribute upto $4,000. This amount is deducted from the contributions from the taxable income.

4. Roth IRA: The new form of Individual Retirement Account is Roth IRA. This is a private retirement plan in which income is taxed before it is saved. Interest is not taxed on the income when it is used after retirement.

These are some special plans in which an individual working with a company or self-employed can save money for after retirement purpose. To lower the risk, it is suggested that an individual should invest in different type of investments. If one investment fails, return can be reaped from another. The strategy of investing in different plans is termed as diversification by financial planners. One of the example of diversification is mutual funds.

Economics Concept Introduction

Introduction:

Special Saving Plans-Every individual plan for their comfortable lives after retirement. There are many social security plans which provide money to people after their retirement, however these plans do not provide enough money. Hence, there are special saving plans like pension plans and Keogh plans that can be used for saving money for future.