Options for pension and retirement include different types of plans such as defined contribution plans, defined benefit plans, cash balance plans, simple IRAs and more. Deciding between a monthly income or a lump sum is an important decision for those planning their retirement, according to Consumer Reports.
A traditional pension plan guarantees that an individual receives the benefits he earned even if the company he worked for runs into financial problems, states USA.gov. The Pension Benefit Guaranty Corporation is the main governmental agency that insures most of the benefit pensions in the private sector. However, the agency does not cover military pensions, government pensions, 401ks and IRAs.
One of the most common types of pensions in America is the defined benefit plan, which uses a specific formula to pay benefits from a trust fund. A cash balance plan provides retirees with a lump sum at the time they reach retirement age. Hybrid pension plans also exist and they combine the features of a defined contribution plan and defined benefit. The 401K plans are tax-qualified, defined contribution pension accounts where the contributions are paid by an employer. An IRA plan offers similar advantages but is easier to administrate and often less costly.