Are Pension Plans Good Ways to Save for Retirement? Part 1: Comparing the two plans

Excellent in-depth post from The Small Investor. This is recommend reading as it covers many details that were missed on the One Percent. Please check it out!

The Small Investor

Clingdome2I was reading an article from the one percenter on pension plans and thought that more should be said on the subject.  Defined benefit pension plans are often highly coveted, while 401k plans are seen as less generous and risky.  After all, in one case you are guaranteed a certain income or lumped sum, while in the other case your final return will be based on the fickle will of the markets, right?  Well, not exactly.  Let’s look at both plans.

Defined Benefit Pension Plans

As the name implies, a defined benefit plan has a prescribed benefit when you retire.  This benefit is often based on some really complex formulas, but, in theory, with some assumptions and some help from HR you should be able to predict what you’ll receive in retirement because the benefit is defined.  They were designed in the past to keep employees at the same company.  …

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