November 29, 2014
What is the difference between a defined benefit plan vs. a defined contribution plan? Why should you care?
What is the difference between a defined benefit plan vs. a defined contribution plan? Why should you care?
A defined benefit plan is a pention. You work some place for a set amount of time and you will get a set amount of money when you retire. A defined contribution plan is a 401k or 403b. You put the money in and the employer normally matches some of what you put in. You need to foot the bill for the defined contribution plan normally. You should care because you need to know what kind of retirement plan you work has and what you need to do to get the best out of your works plan.
Well said, Garrett. Let’s review.
The defined benefit plan (pension) was the retirement of choice for many decades, but slowly, but surely, it has been replaced in large measure by the defined contribution plan (401k, 403b, TSP, and 457). What is offered at your workplace?
The defined benefit plan is primarily funded by the employer. The defined contribution plan is primarily funded by YOU. It is critically important to understand this point. Start early and start NOW. Your financial future is at stake!