What is the pension?
The pension is defined as sum amount of money received monthly after the retirement. It is one of the sources of retirement income. The pension is not given to all the employees. The employees who are working for government organizations only get the pension. The employer contributes money to the pension plan while working. That money can be paid as the monthly pension after the retirement.
The pension uses is included with the following:
- The person’s service with the organization.
- Age of the person.
- Compensation of the person.
Types of pensions:
Employment-based pension: The pension paid to the employee by the employer after the retirement.
Social and state pension: The state pension is the fund paid to the person based on the contribution of the individual to the government. The social pension is the fund paid to the older people in the country who are unable to work and who don’t get the employee-based pension.
Disability pension: The pension paid to the disabled persons by the government.
A defined-benefit plan is subjected to employer-sponsored retirement plan where the employee benefits are evaluated using a formula that includes several factors, like employee salary history, length of the employment. Withdrawing funds are restricted for the employee without penalty.
A defined-contribution plan is a retirement plan in which the employee contribute a fixed amount of money or a percentage form their salary that is intended to fund their retirement. The most common defined-contribution plan used is 401(k). The company matches the portion of employee contribution as a benefit to help retain and attract talent. Withdrawing funds are restricted for the employee without penalty.
Single-life or Joint-and-survivor plans:
The single-life plans are defined as the monthly benefits received by the retiree. This plan will end after the employee passes away. The main drawback of this plan is the surviving spouses will be left without a major source of income. Retiree without spouses or dependents that require financial support selects this plan.
The joint-and-survivor plans are defined as an additional beneficiary of the retiree and their spouses. This plan is monthly benefits that continue until both the beneficiaries pass away. The monthly benefits of this plan are lower than the monthly benefits of the single-life pension.
The components included in the pension calculator:
Lump sum payout or monthly pension income:
- Retirement age: The age of the person when the person retirement.
- Lump sum payment amount: A large amount of payment made at the retirement.
- Investment returns: The return received on the investment.
- Monthly pension income: The monthly pension received by the retiree.
- Cost of living adjustment: The adjustments made in the cost of living of the retiree.
Single-life or joint-and-survivor pension payout:
- Life expectancy: The expected lifespan of the retiree.
- Spouse’s age when the person retires: The age of the retiree spouse when the person retires
- Spouse’s life expectancy: The expected lifespan of the retiree’s spouse.
- Single life pension: The pension of the retiree with the single life plan.
- Joint survivor pension: The pension of the retiree with the joint survivor plan.
Using this calculator the person can evaluate the most common situations faced while planning pension-related decisions made before retirement.