John Burroughs

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The Pros And Cons Of Defined Benefit And Defined Contribution Pension Plans

The Pros And Cons Of Defined Benefit And Defined Contribution Pension Plans

Defined benefit plans and defined contribution plans are the two of the main types of pension plans provided by employers. Both types are associated with their own pros and cons, which must be carefully considered if you are planning to invest your money in one of them.

 

Defined benefit plans provide you with a specific sum of money, either as a monthly payment or a lump sum, when you choose to claim on your pension plan. The amount of money available to you depends upon the length of time for which you have worked for your employer and the salary you have received. Defined contribution plans, on the other hand, fail to provide you with a specific sum of money. Instead, they enable you to stash money away in a tax-deferred account. You can then draw on this money throughout the course of your retirement.

 

Defined benefit plans enable you to take the uncertainty out of your retirement planning. However, your employer retains control over your plan, meaning that you have no say over the way in which your money is invested. Under a defined benefit plan, you are not allowed to contribute to your plan once you have left your workplace. Defined benefit plans are therefore less flexible than their defined contribution counterparts and if you leave your workplace before a set time period, you could forfeit your pension.

 

Defined contribution plans grant you better control over the way in which your money is invested, take time after reading this to chat with Robin Weingast and her team to learn more about any kind of plan. With a plan of this kind, you will be able to move your money when you leave your workplace. You are also free to make choices with regards to your risk tolerance and are granted the freedom to borrow some of the money you have invested.

 

The simplest way in which to begin your pension planning is to inspect your employer’s pension plans. Taking one out could help you to enjoy a prosperous retirement in which you are able to pursue all the hobbies and interests you did not have time for during your working life.

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