increase our hope chest,” says Johnson-Reece, who’s married and has a two-year-old daughter. “I know when I retire Social Security is barely going to exist or not at all. So, it’s important that my husband and I make plans now to prepare for that time.”
Johnson-Reece and her husband started investing in high-technology stocks to grow their investment portfolio and tapped a planner to help them create a 15- to 20- year financial plan. By following this formula, they can expect to find comfort in their golden years.
These days, American businesses are offering a number of retirement plans.
The chart below provides details on the characteristics of traditional defined-benefit, defined-contribution and cash-balance plans.
|Beneficiary||Defined-Benefit Plan (Traditional Pension)||Defined-Contribution Plan (401k, 403b)||Cash-Balance Plan|
|Structure of Plan||Rewards older and longer service employees||Significant accruals at younger ages||Significant accruals at younger ages|
|Risk Level||Generally, no employee contributions, no individual accounts||Employee and/or employer makes contributions to plan to fund all employees||No employee contributions; employer makes regular contributions to a fund of assets for benefits accrued by individual employees|
|Benefits||Employer bears investment risk||Employee bears investment risk||Employer bears investment risk|
|Benefits are based on formula tied to years of service and salary||Benefits payments based on money accumulated in each individual’s account||Benefits are defined in terms of current lump-sum equal to “account” balance|
|Benefits defined as life annuity||Employee selects a menu of investments, usually mutual funds||Accounts credited with interest tied to 30-year Treasury|
|Usual form of benefit is monthly income||Usual form of benefits is lump-sum payment||Form of benefit payment is a lump sum or annuity|
|Portability||Usually not portable||Portable||Portable|
|Insurance||Pension Guaranty Corp. cost and insurance||No Pension Guaranty cost and insurance||Pension Guaranty Corp. cost and insurance|
|Vesting Schedule||Plan can require certain number of years service before vesting occurs||Emplo
yee contributions are immediately vested; vesting in employer contributions
|Plan can require certain number of years service before vesting occurs|