Retirement plans or pensions may be classified as defined benefit or defined contribution according to how the benefits are determined. A defined benefit plan guarantees a certain pay-out after retirement, according to a fixed formula which usually depends on the member's salary and the number of years' membership of the plan. In a defined contribution plan, the payout is dependent upon the amount of money contributed, and the performance of the investment vehicles utilized. Owning company stock or a 401K are examples of this type of plan.
Some types of retirement plans, such as cash balance plans, combine features of both defined benefit and defined contribution schemes.
Most plans are supported by employers for their employees. If your company
does not offer a pension plan, it is possible to become a part of a community
like a union that will secure a pension for its members. Examples are a teacher's
union or metalworker's guild. In addition, plans like 401K's can be purchased
individually from investment companies like
Most companies offer step-by-step instructions for investors to secure a personalized
plan to create savings for the future. For a complete primer on investing in
your future, try
http://www.fool.com/Retirement/RetirementPlanning/.
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