What are the advantages of a defined benefit plan?
- What's a defined benefit plan?
- Can I decide how my money is invested?
- What's the difference between a defined benefit plan and a defined contribution plan?
- What happens when I retire?
- Exactly how much will I get when I retire?
- Am I eligible for a defined benefit plan?
- Just how common are defined benefit plans?
- What if I work for the government?
- What are the advantages of a defined benefit plan?
- What are the disadvantages of a defined benefit plan?
- Can I tap my money early?
- Can I count on the money to be there when I need it?
- Will PBGC payouts be as big as I was counting on?
- Is there insurance on government plans?
- How can I make sure my pension is covered by the PBGC?
At the risk of sounding un-American, the main advantages - besides the fact that you don't have to put your own money into it - are the lack of choice and the lack of responsibility.
Here's why. Studies have shown that 401(k)s and other defined contribution plans haven't been as successful as many proponents hoped. Turns out that when employees are given the choice of investing their own money for retirement, lots of them say no thanks, or else invest sums that are way too small to cover their retirement needs. The array of investment options - many plans have more than a dozen funds to choose from - can be another turnoff. And investors in those plans often earn lower returns than they expected.
A defined benefit plan delivers retirement income with no effort on your part, other than showing up for work. And that payment lasts throughout retirement, which makes budgeting for retirement a whole lot easier. You can even arrange to take a reduced payment so your spouse will continue to receive income if you die first.
