Pension plans
Understanding Pension Plans: A Guide to Securing Your Future
A pension plan is a retirement savings program that provides financial security for individuals after they retire. It involves contributions made during a person’s working years, which are then invested to provide a steady income stream during retirement. Pension plans are typically offered by employers or governments, but individuals can also create private plans. Understanding the different types of pension plans and their benefits is essential for effective retirement planning.
Types of Pension Plans
Defined Benefit Plan
Offers a predetermined monthly benefit at retirement, based on salary and years of service.
Defined Contribution Plan
Employees and/or employers contribute to an individual account, and retirement benefits depend on investment performance.
State or Government Pension Plans
Provided by the government to ensure basic retirement income, often based on lifetime earnings.
Hybrid Plans
Combines features of both defined benefit and defined contribution plans, providing more flexibility.
