Assignment 7_082267

Assignment 7_082267 - BA250 Personal Finance Assignment 7...

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BA250 Personal Finance Assignment 7 20 April 10 Chapter 16 Review Questions Page 532 3. Social security benefits are determined by the number of years of earnings, level of earnings, and an inflation adjustment to replace 42% of your income. If you retire early at the age of 62 you will only receive 70% of the full benefits available until you turn 67. 5. A defined benefit plan is one in which you receive a defined payout at retirement. A major advantage of this type of plan is that the employer bears the full weight of the investment risk since you don’t put any money into the plan. A big disadvantage though is that companies can change or drop pension plans pretty easily. 6. Vesting simply means that if you leave the company you can take your pension with you. This is important when considering a job because you’ll want to know how many years you have to work before you become vested and you’ll want to know when your pension will start if you leave the company. Vesting is probably better for the employer because they stand to recoup investment earnings if they don’t have to pay out to short term employees. It also is probably not in the best interest of the employee unless it’s a job they plan on staying at for the rest of their career. 7. A cash balance plan is one that employers invest 4-7 percent of your annual salary into an account to be used for your pension. These plans generally grow at a slow rate but are advantageous to employees and employers. Employers save money in the long run by reducing the benefits for older workers. Employees start earning a pension immediately and can take it with them or roll it into an IRA when they leave the company. 9. The advantages of tax deferred retirement plans are that you don’t have to pay taxes on the money you invest and you don’t pay interest on the earnings from your retirement account. 10. A defined contribution plan is similar to a personal savings account in which both the employer and employee can invest and the retirement payouts are based on how well the investments performed over time. A defined benefit plan is contributed by the employer and guarantees you a defined amount of money during your retirement. The employer benefits in both instances due to the level of contributions required.
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11. The 5 most common defined contributions plan are: a. profit sharing plans - disadvantage is that contributions are not guaranteed b. money purchase plans – unlike profit sharing, contributions in this plan are guaranteed
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Assignment 7_082267 - BA250 Personal Finance Assignment 7...

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