2 discussion responses. 200 words each reply. apa.

Respond to each separate discussion with 200 words each, providing input on defined benefit retirement plans and defined contribution retirement plans. Your replies must be substantive and not random thoughts without support. They must add to the information in the threads, and the information must be supported with factual information from journals.

1)

“A defined-benefit plan is a retirement plan that an employer sponsors, where employee benefits are computed using a formula that considers factors, such as length of employment and salary history.” (Investopedia, 2015) Examples of this are the military’s retirement plan, along with many other government and federal agencies plans; also, pension plans. This plan works off a percentage of a given salary and the time in a position. “A defined-contribution plan is a retirement plan in which a certain amount or percentage of money is set aside each year by a company for the benefit of each of its employees.” (Investopedia, 2015) Examples of this exclude the well-known 401 (k), 403 (b), and on the federal side the Thrift Savings Plan (TSP). These work in the fact that the employer sets aside x amount for the employees. Employees often have share matching up to a certain amount.

If there were not pros and cons to anything in this world there would be no competition and other options. The retirement systems are no different. Retirement is the end goal in our life here on earth. Everyone wants to get there but most people do not realize what it takes to live in that point in life. The article, Defined benefit vs. defined contribution retirement plans for faculty, has some very well put tables that include years worked, payout, and even IRR percentages. This article also goes in to talk about some differences in payout. Are you going to be receiving a lump sum or a monthly payment? A lump sum payment brings on the added risk of having to manage a lot of money at once. Now, in the article, reforming the legal retirement age, as the title insinuates; it touches on retiring early or late. With defined contribution, it works solely off how much money is put in. This is a direct factor of how long someone is with a company. Staying an extra 5-10 years past ones eligible retirement age can payoff in large amounts. Whereas, with the benefit plan, it is simply a matter of reaching the desired position within your company and holding it for a specific period of time. Retirement Security for Americans and the Role of Defined-Benefit Pension Plans,talks on that same note however is geared away from the defined contributions. It goes in the fact that even though contributions are on the rise, DC type plans are forcing people into working later and later into life. Now, the argument can still be made that it is all dependent on an individual’s lifestyle.

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2)

A defined contribution (DC) retirement plan is a plan in which the employer (and usually the employee) contribute to some investment vehicle, usually an IRA or 401(k).  (ESOPs and SEPs also fall in this category)  The funds in the investment vehicle are managed by the employee, and upon separation from the company, the employee keeps everything in the investment vehicle. The employee assumes all risks associated with investment, but also reaps all rewards. Upon death, DCs can be given to beneficiaries, and are considered assets for the employee.  DCs are the most common plans in existence today, and are generally more advantageous for both the employee and the employer.  Defined benefit (DB) retirement plans are completely employer owned until retirement, and the employee usually gains no benefit from the DB if they leave the company before retirement.  The current structure of the US miltary’s retirement plan is a prime example of this type of plan, as are most of the plans that many of the oldest retirees are currently living on, especially those that spent all of their working life with the same company (like the large infrastructure companies and many state and federal jobs).  These types of plans usually have high overhead and administrative costs, and the employer shoulders all of the risk and reward on any investments.  DBs are rarely in use today.  (How Does A Defined…?, 2017)  Social Security is a bit like a DC plan, in that employees contribute to the plan (whether they want to or not), and a bit like a DB plan, in that your retirement benefit is a set amount, and you have no benefit from the plan until you reach retirement.

A study of retirees in the United Kingdom attempted to find a relationship between one’s job satisfaction and the age at which one retires.  This study found that among higher income employees, there was no correlation between retirement age and job satisfaction, but among low and middle incomes, higher job satisfaction correlated to a higher retirement age. (Davies, et al., 2017)  Another study among Hong Kong retirees links positive experiences during retirement planning and higher availability of planning resources during retirement planning to higher levels of happiness during retirement, regardless of income level.  (Yeung, et al., 2017)  These studies encourage me in several ways.  First, I enjoy my job, and I like the prospect that I will continue to desire to work longer at a job that I enjoy as I get near retirement.  Secondly, I have a wealth of informative resources in retirement planning (this class being one), and this likely means I will be happier in retirement than I would be otherwise.  Happy before retirement and happy after retirement?  Yes, please.

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