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FINANCING YOUR RETIREMENTWITH DEFINED BENEFIT VS. DEFINED CONTRIBUTION PROGRAMS NOTE. THIS IS AN INDIVIDUAL ASSIGNMENT, TO BE DONE ONLY AS INDIVIDUAL WORK. NOTE FOR NON-US STUDENTS : IF YOU ARE FROM ANOTHER COUNTRY AND PLAN TO LIVE AND WORK (AND RETIRE) IN THAT COUNTRY, YOU MAY EITHER DO THIS ASSIGNMENT, OR WRITE AN EQUIVALENT PAPER DESCRIBING THE RETIREMENT SYSTEM(S) IN YOUR COUNTRY, AND THEN DESCRIBE HOW YOU PLAN TO MANAGE YOUR OWN RETIREMENT FUNDS. Before beginning this assignment, consult CH 13 and be sure you understand: DEFINED BENEFIT PENSION : Pays a retiree a specified annual retirement as long as the person lives. The amount of the annual retirement payment will be based on a formula specified by the employe r. (These vary from employer to employer, but usually include the number of years worked for the firm, the person’s salary while working, and some %.) DEFINED CONTRIBUTION PLAN : Pays some specified amount each pay period into an account over which the employee will have some investment options. Once vested, the employee literally owns these funds, and they stay with the employee (usually converted into an Individual Retirement Account to maintain tax deferred advantages) throughout their life. In a defined contribution plan, once the employee leaves a firm, that firm has no obligation to provide further funds to the employee. VESTING : Whether DB or DC, vesting means that the employee literally owns the retirement or pension benefit. If you are not vested, you do not own anything. Life expectancies are increasing and many people now in their 20’s can expect to live into their 90’s and 100’s. This means that many people will need to finance their retirement for a period of 25 - 40 years or longer (given a projected retirement age of 70). The decisions you make early in your career will have a very substantial effect on your retirement income. In fact many financial advisors argue that one of the most important things individuals can do to help themselves is to begin planning and investing EARLY (e.g. even before you begin working). In general, the purpose of this assignment is to help you begin this planning process. More specifically the assignment is designed to show you how the type of pension plan an employer offers, and your movement between jobs early in your career have a very large impact on your retirement . This assignment has the potential to be a very significant help to your life. A. Primary sources of retirement income are as follows: 1. Social Security - it appears that Social Security will at best provide a partial income (perhaps 20% of necessary funds). Some people argue that Social Security might not even be around when you retire. Others argue that it will need to evolve in the future, perhaps becoming more “progressive” (less pay out or higher taxes for those in higher income brackets). Recommended websites:
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This note was uploaded on 01/31/2011 for the course OBHR 428 taught by Professor Campion during the Fall '09 term at Purdue University-West Lafayette.

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