In the society we live in, most of us go to work in some form or another to get money to live on. As we get older, we amass a lot of work experience. As we grow older, it becomes apparent that there will come a time when we will have to retire. For us to be able to retire, we have to prepare a method of earning substantial income.
There are many methods of doing this. Saving your whole life is the common way. Others have a plan in place while they are working so that that plan pays them each month that they are in retirement. Such plans are for things called pensions.
A description of various pension plans that exist
The first is called a Designed Benefit Pension Plan. A fixed sum of money is paid periodically after retirement that is arrived at by using formula that helps determine your aggregate pension benefits.
Under this plan, the company uses three types of formula for determining benefits. There is a flat benefit formula. This means you get a fixed amount per year of your service. The next formula is the best earning average. This simply means your pension will adjust according to what you have earned over a certain period. As an example, it might figure 3% of your average earnings over a 7-year period. Finally, you have the career average-earning formula. You will receive a fixed percentage of your annual earnings.
The second kind of pension plan is Defined Contribution Pension Plans. Here, you receive a fixed amount in an investment account. When you retire, you get the investments along with the interest earned. The problem with this is you do not know what amount of money you will get when you retire. The amount will depend on how much is added to your plan by some other source or you. In addition, it will depend on the amount of interest you earn on the investment section of the plan. Some of these plans allow you to make decisions and some are made by a board of trustees or other persons in the organization.
Only the 2 aforementioned schemes are registered. There are a few others, such as deferred profit sharing, employee stock purchase plans, and individual pension plans. Most of these plans depend on the performance of the company for your pension.
There are many methods of doing this. Saving your whole life is the common way. Others have a plan in place while they are working so that that plan pays them each month that they are in retirement. Such plans are for things called pensions.
A description of various pension plans that exist
The first is called a Designed Benefit Pension Plan. A fixed sum of money is paid periodically after retirement that is arrived at by using formula that helps determine your aggregate pension benefits.
Under this plan, the company uses three types of formula for determining benefits. There is a flat benefit formula. This means you get a fixed amount per year of your service. The next formula is the best earning average. This simply means your pension will adjust according to what you have earned over a certain period. As an example, it might figure 3% of your average earnings over a 7-year period. Finally, you have the career average-earning formula. You will receive a fixed percentage of your annual earnings.
The second kind of pension plan is Defined Contribution Pension Plans. Here, you receive a fixed amount in an investment account. When you retire, you get the investments along with the interest earned. The problem with this is you do not know what amount of money you will get when you retire. The amount will depend on how much is added to your plan by some other source or you. In addition, it will depend on the amount of interest you earn on the investment section of the plan. Some of these plans allow you to make decisions and some are made by a board of trustees or other persons in the organization.
Only the 2 aforementioned schemes are registered. There are a few others, such as deferred profit sharing, employee stock purchase plans, and individual pension plans. Most of these plans depend on the performance of the company for your pension.
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