RETIREMENT PLANNING
A retirement plan provides the beneficiary with income, or a pension, during retirement, when they are no longer earning a steady income from employment. Retirement plans may be established by, employers, insurance companies, or institutions, such as employer associations or trade unions. Retirement plans are more commonly known as pension schemes in the UK and Ireland and superannuation plans in Australia.
Defined Benefit
Retirement plans may be classified as defined benefit or defined contribution according to how the benefits are determined. A defined benefit plan guarantees a certain payout at retirement, according to a fixed formula, which usually depends on the salary and the number of years in the plan. A defined contribution plan will provide a payout at retirement that is dependent upon the amount of money contributed and the performance of the investment.
Some types of retirement plans, combine features of both defined benefit and defined contribution plans. They are often referred to as hybrid plans; one example of this type of plan is called the cash balance plan.
Defined Contribution
In a defined contribution plan, contributions are paid into an individual account for each person in the plan. The contributions are then invested and the return on investment is credited to the individual's account. Upon retirement, the member's account is used to provide retirement benefits, often through the purchase of an annuity, which provides a regular income. Defined contribution plans have become more internationally widespread in recent years, and are now the dominant plan in the private sector in many countries.
How can you benefit from Retirement Planning?
The importance of securing a standard of life that you are aiming for in the future or as retiree, cannot be emphasized enough.
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