The recession has taught some of the bitterest lessons to the consumers of US which they had never expected or knew before. The severe and resentful nature of debts and the hassles of debt care have made them to rethink their financial plans. Therefore, even the college students have already begun to prepare themselves with a solid financial support for retirement. The transition from college to a professional world is crucial enough and the individuals are required to choose their benefits; for instance medical coverage, life insurance and pension plan options with dexterity. As far as the pension plans are concerned, the employees have two options to choose from:
A defined contribution pension plan is an option which will allow you to contribute a consolidated and fixed amount from your annual salary. This is a good option for people who are in their 20’s and 30’s, which will help an employee to have a grip on the investment options .The fixed amount which is contributed by the employees are managed by the employers who can invest the amount in stocks or mutual funds. The best thing is that both the employee and the employer contribution can be acquired by the employee at the time of leaving the organization.
On the other hand, a defined benefit pension plan is one in which the contributions are sourced from the employer and the employee contributions are not mandatory. As a result of this, the employer has more control over the contributions. The benefit comprises of a number which is a combination of the employee’s age at retirement and the number of years of service. This is certainly not a good option for the young people because they are least likely to retire with the same employer. Thus, whatever the options may be, defined contributions will help the consumers to have a better financial cushion after retirement.
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