Choosing a Retirement Plan: Is a Defined Benefit Plan Right for You?

Making decisions about how you are going to pay for retirement can be daunting. There are many options available to you and each has the ability to have a significant impact on the way you enjoy your time after you stop working. While some plans have been phased out by certain sectors of the workforce, for those who have access to a defined benefit plan, take advantage of your employer contributions while still adding part of your income to a different account.

What Is a Defined Benefit Plan?

A defined benefit plan is also known as a qualified benefit plan or pension. It is an employer-sponsored retirement plan where employees receive a fixed amount based on their duration of employment and salary history.

An equation is used to factor in different elements of a person’s employment and most likely does not require any contribution by the worker. Any investments and the management of the portfolio is controlled solely by the company. Defined benefit plans have been scaled back in recent years due to their cost and how complex they are to maintain administratively.

What Makes It Different?

This plan differs from other Retirement Plan Company options in that if the determined payout amount cannot be met by the profit from investment, the company must cover the difference to make sure the employee receives the amount agreed upon.

There are limitations on the amount that can be paid out to beneficiaries which means it should not be used as a primary source of income. When enrolling in a defined benefit plan, pay attention to the restrictions on withdrawing your earnings and the resulting penalties. Defined benefit plans are known for having strict guidelines and you do not want to sacrifice some of your income because you were not informed.

Not all companies still offer defined benefit plans to their employees but if yours does, consider making it an addition to your retirement. 

Source: http://blog.ctrust.com/choosing-a-retirement-plan-is-a-defined-benefit-plan-right-for-you