The Main Idea 

Eligibility requirements of social security: The criteria stipulates that typically [latex]40[/latex] credits are needed, which is equivalent to approximately [latex]10[/latex] years of work. These credits are based on your earnings, and the amount of earnings required for a credit changes from year to year. In 2023, for example, you earn one credit for each [latex]$1,410[/latex] of wages or self-employment income, and you can earn up to four credits per year.

The age at which one chooses to retire and start claiming benefits can significantly influence the amount received. You are entitled to your full retirement benefits at your full retirement age. Your full retirement age is dependent on the year of your birth.

You can begin claiming benefits as early as age [latex]62[/latex], doing so will permanently reduce your monthly benefit. For each year you delay claiming past your full retirement age (which ranges from [latex]66[/latex] to [latex]67[/latex], depending on when you were born), you earn delayed retirement credits, which increase your monthly benefit up to age [latex]70[/latex].

The amount of an individuals Social Security benefits are calculated based on an individual’s average indexed monthly earnings (AIME). A person’s average indexed monthly earnings (AIME) is a calculated average that summarizes up to [latex]35[/latex] years of a worker’s earnings, adjusted or “indexed” to reflect changes in general wage levels over the individual’s working years.

One calculated, a person’s AIME is then put through a formula to compute the primary insurance amount (PIA). The primary insurance amount (PIA) is the benefit a person would receive if he/she elects to begin receiving retirement benefits at his/her FRA.

The Main Idea A 401(k) is a retirement savings plan offered by employers to their employees. It allows employees to contribute a portion of their pre-tax income to the plan, which grows tax-deferred until withdrawal during retirement. Contributions are often matched by employers up to a certain percentage. The funds in a 401(k) can be invested in a variety of options, providing the opportunity for growth over time.

The two main types of 401(k) plans are traditional 401(k) and Roth 401(k). In a traditional 401(k), contributions are made with pre-tax income, and withdrawals during retirement are subject to income tax. With a Roth 401(k), contributions are made with after-tax income, and qualified withdrawals in retirement are tax-free.

The Main Idea 

A pension plan is a retirement benefit provided by employers that guarantees a specific income to employees upon retirement. It is typically based on a formula that considers factors like years of service and average salary. Pension plans are funded by contributions from employers and sometimes employees. The employer is responsible for managing the investments and assumes the risk. Pension payments are usually provided as a monthly income for the retiree’s lifetime.

The Main Idea 

Individual Retirement Accounts (IRAs) are personal retirement savings accounts that offer tax advantages. They are typically opened by individuals to supplement their employer-sponsored retirement plans or for those who don’t have access to such plans.

IRAs allow individuals to contribute a certain amount of money each year, and the contributions may be tax-deductible depending on eligibility and type of IRA. The funds within an IRA can be invested in a variety of options, and earnings grow tax-deferred or tax-free, depending on the type of IRA. Withdrawals from IRAs are generally taxed and may be subject to penalties if taken before retirement age.

The two main types of IRAs are traditional IRA and Roth IRA. In a traditional IRA, contributions may be tax-deductible, and earnings grow tax-deferred until withdrawals, which are then taxed as ordinary income. With a Roth IRA, contributions are made with after-tax income, but qualified withdrawals in retirement are tax-free.

The Main Idea 

Bonds are debt instruments issued by governments, municipalities, and corporations to raise capital. When an investor purchases a bond, they are essentially lending money to the issuer in exchange for regular interest payments and the return of the principal amount at maturity.

Bonds are considered relatively safer investments compared to stocks as they offer a fixed income stream and are generally less volatile. The risk and return associated with bonds vary depending on factors such as the creditworthiness of the issuer, term length, and prevailing interest rates.

The Main Idea 

Certificates of Deposit (CDs) are financial products offered by banks and credit unions that provide a fixed interest rate for a specified period of time. When an individual purchases a CD, they deposit a specific amount of money for a predetermined term, ranging from a few months to several years.

CDs are considered low-risk investments as they are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. The interest earned on CDs is typically higher than traditional savings accounts, and the principal is returned at the end of the term. Early withdrawals from CDs may result in penalties.

The Main Idea 

Stocks represent ownership shares in a publicly traded company, offering individuals the opportunity to become partial owners. Investors who purchase stocks, known as shareholders, have the potential to benefit from the company’s growth and profitability.

Stock prices can fluctuate based on market conditions, company performance, and investor sentiment. Shareholders may receive dividends as a portion of the company’s profits, and they have the ability to sell their shares in the stock market. Investing in stocks carries risks, including the potential loss of principal, but also offers the potential for capital appreciation.

The Main Idea 

Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They are managed by professional fund managers who make investment decisions on behalf of the investors.

Investors in mutual funds purchase shares, which represent their proportional ownership in the fund. Mutual funds offer diversification, liquidity, and convenience, allowing individuals to invest in a wide range of securities with relatively small amounts of money. Returns in mutual funds are based on the performance of the underlying investments and are typically distributed to investors in the form of capital gains or dividends.