Modern day Pension Plans are becoming a thing of the past in most Big Companies and Government positions.
Gone are the days when you can count on a fixed retirement benefit from the companies out there. Almost every week you hear about the shift in Pension Plans from a Defined Benefit Pension Plan to a Defined Contribution Pension Plan, but what are the differences? It only sounds like one word has changed in the phrase, but the changes are staggering.
For a generation of workers who are now entering into retirement, they can have the safety and security of a Pension Plan that has been the foundation of their working years. This generation had one job in their lives, they lived in one house, they usually needed only one car in the driveway and generally only lived on one Income to survive.
Today’s working families have dramatically different challenges. There is no Pension Plan available to most workers, they move 2-3 times in their lives, they normally will have 3-4 jobs in their lifetimes, 2 cars is a must and both spouses need to work just to keep up!
A Defined Benefit Pension Plan was created so that there would be a certain level of income guaranteed once you entered retirement, similar to the Canada Pension Plan. You knew that if you retired at age of 60 there would be a certain benefit available to you, and if you postponed that benefit to age of 65 the amount would be greater, and so on. This was a Guarantee of Income, no matter how long you lived. Accompany this with the fact that there can be a survivors benefit, and it gave a lot of confidence that there would always be income into your retirement years. This is a Defined Benefit.
A Defined Contribution Pension Plan on the other hand only guarantees that if you put a dollar away today, your employer will also match that dollar today (Up to a Certain Limit) but there is no mention of Income into the future anymore, and there is no survivor benefit in most cases.
So a Defined Benefit Guarantees Income into the Future, and a Defined Contribution Guarantees a Contribution Today! This is the way many large corporations and government organizations can take the long term obligations off their books.
A GMWB or GLWB act like a Defined Benefit Pension Plan, where you can know with certainty, and have contractual Guarantees on the Income you will receive into the future. You can save into your GMWB account, and while you are saving you get a base Guarantee as high as 5% on the Income that is accumulating, and when you choose to retire, you know exactly how much you will receive as Income.
If throughout your savings years the Market Performance of your retirement portfolio does better than the 5% Guarantee, then you receive the better of the two values. And if you see that the Income that will be Guaranteed to you at Retirement will not meet your goals, then you have many years to fix it by saving more today.
You are creating your own Defined Benefit Pension Plan…
Download your Income Stability Report today, to find out how this strategy will compliment your retirement income. Once you have decided that this is the right strategy to deliver a sound Income Base for your future, request a Quote and see if your savings will satisfy your needs into retirement.