So far I have suggested that government benefits should be your first layers of cash flow as soon as they are available. The next source is employment income and now we arrive at pensions. If you or your spouse do not have a pension benefit, you may wish to skip this section.
A pension plan can be an effective accumulation vehicle since it involves matching employer contributions, but contribution formulas and types of pension plans vary substantially. It is very important for you to be aware of the amount of income that you can realistically expect from this source. In addition, we are living and working in a time where it is common for people to move from one job or career to another. This obviously has an impact on the ability to build long-term values and income in a pension plan.
Types of Pensions
I would like to use this book to talk about the use of your pension plan in terms of income or using the value of your plan rather than the mechanics of the accumulation vehicle itself. That said, I do feel it necessary to include a very cursory overview of the two types of pension plans that are out there and some of their distinguishing features.
When all is said and done, there are just two types of pension plans, defined benefit and defined contribution. Here is the best way to explain the differences between the two, and it involves Sam and Dave, who are the best of friends. On a hot summer day, they step up to the windows at the local dairy bar to order an ...