Pension plans are an important part of retirement planning for employees. There are two types of plans: defined benefit and defined contribution. Defined benefit plans are being used increasingly less because they are built on a set payment formula which can be hard for a company to administer given lower interest rates and longer retirements. Defined contribution plans have become the new normal as they are based on employee contributions – this enables employers to avoid taking on the responsibility of market swings in payouts.
With defined contribution pension plans, employees get to choose not just what to invest in based on their future goals, but also whether they are comfortable with high or low risk opportunities. These decisions make it all the more important to understand the options on the table when it comes to the role an employee’s pension plays in retirement planning. Some questions to consider include…
- How long until the employee retires?
- What level of risk are they willing to take on in their investments?
- What goals do they have upon retirement and how much money will it take to cover that lifestyle?
- What opportunities, sectors or markets are they interested in investing in?
Investing Today to Prepare for Tomorrow
With the decline in defined benefit pension plans, employees are more likely to find themselves in the driver’s seat when it comes to preparing for the future. To find out more about building retirement plans that suit specific needs and goals, contact your advisor at Dobson & Toncic today.