Retirement Plans

#3. Retirement Plans ( Professor Post)

What are some ways in which we can save for retirement and the tax advantages or disadvantages of each?

#4. Re: Chapter 13 13-1 Defined Benefit Plans (Professor follow-up)

Good discussion on defined benefit plans. Defined benefit plans are plans in which employees received a specified amount at retirement. An easy example is a pension. A pension may state, for example, that the employee will receive $1,000 per month or 2% of average salary for the last 5 years of employment for every year of service with an employer.

Unlike defined benefit plans, defined contribution plans are plans in which both the employee and the employer contribute to the employee’s account and at retirement the employee receives the balance on the account. These plans are defined by the amount of the contributions rather than the amount the employee will receive. In these types of plans, the employee rather than the employer bears the risk of investment. A well-known example is a 401(k) plan.

Question for all: Please review Exhibit 13-4 in your textbook. What other specific differences do you see between defined benefit and defined contribution plans?