Retirement Account

Retirement accounts come in two broad types. Workplace accounts are offered through employers, often with employer contributions. Personal accounts are opened individually.

Most retirement accounts offer tax benefits, such as tax relief on contributions, tax-free investment growth or tax-free withdrawals, depending on the account type and country. In return, money usually cannot be withdrawn without penalty until a certain age, except in limited circumstances.

For example, an employee might contribute 5% of their salary to a workplace retirement account, with their employer adding a further 3%, all invested in a mix of funds that grows until retirement.

The names and rules vary widely between countries. Examples include workplace pensions and personal pensions in the United Kingdom, superannuation in Australia, the Registered Retirement Savings Plan in Canada and 401(k) plans and individual retirement accounts in the United States.

Starting contributions early, taking full advantage of any employer contributions and choosing appropriate investments are key to building a substantial retirement fund. Because these accounts are designed for the long term, they often hold a high proportion of growth investments such as shares when retirement is far away.