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 |
