How do you calculate pension payouts upon resignation?


Quick Answer

A person can calculate pension payouts by considering resignation age and type of pension plan, according to the Governmental Accounting Standards Board. These two factors determine the specific pension payout amounts.

Continue Reading

Full Answer

Age is a critical component of a pension payout, explains Financial Planning. For instance, a person retiring at age 55 receives substantially less in payouts each year compared to a person staying just one year longer. In most cases, companies utilize duration as an incentive to remain with the company. However, there are tax implications to consider, as a person working longer and making more money can fall into a higher tax bracket.

The other component related to pension payment calculation is the type of pension a person elects. The Governmental Accounting Standards Board lists two types of pensions. The first is the defined benefit plan. Under this plan, a person receives certain payments upon resignation as listed by the terms of the agreement. In most cases, this plan is a fixed pension plan and results in more certainty upon retirement. The other type of plan is referred to as a defined contribution plan. Under this agreement, an employer deducts a certain amount from an employee's paycheck during his tenure. The funds are then managed in an investment account and paid back to the employee after retirement, notes CNN Money. Given that this plan is subject to the performance of the investment account, the amount of the pension payout can vary.

Learn more about Financial Calculations

Related Questions