Article Abstract:
Portability aspect of a defined contribution pension considerably lowers the risk to the accumulation of pension wealth. Identical defined contribution and defined benefit pensions with identical benefit accrual rates and retirement income streams are entirely different sources of retirement income security. The defined contribution pension is not subject to these risks and consequently is much more valuable. The calculations suggest that the lack of portability of defined benefit plan result in risk premiums on defined benefit pension bonds. Uncertainty with regard to the future confers significant value on the option to retain and rollover the assets in a defined contribution plan. However, the option is also valuable for older employees. Older employees who are already vested in defined benefit plans face significant losses of pension wealth if they change jobs and also face the possibility that their employers may convert their defined benefit plans to hybrid plans. Exercising the rollover option in a defined contribution plan allows employees of all ages to continue building pension wealth, helping to secure a comfortable retirement.
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Article Abstract:
The article looks at connection between short and long term risk and their effect on retirement savings. One of the common measures of risk presented in mutual fund prospectuses is standard deviation. The greater short-term risk necessarily means greater long-term risk needs to be adjusted to recognize what the long-term goal of investing is. While short-term risk is an important factor that affects individuals' comfort with portfolio allocation strategies, it should not be used to the exclusion of long term forecasts that are more directly related to their retirement goals. In order to make good, prudent decisions about their financial futures, employees need information that helps them see the relevant long term consequences of alternative choices. The value of this information is enhanced if it is provided on an ongoing basis. More complete information is available through services that are targeted specifically at retirement planning needs.
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Article Abstract:
The 2004 Replacement Ratio Study from Aon consulting/Georgia State University suggests a method of planning for an optimal retirement income. Innovative options for retirement plan sponsors are also suggested by the study. It may be noted that today's workers need more income on retirement to maintain their standard of living.
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