Making Of A Pension Plan

Upon retirement from any company, pensioners have to adhere to a pension plan, which provides for the retired person to a monthly sum every month for the duration of the lives, or a lump sum meaning a large payment availed by the worker just once, in place of the monthly payments. However, the advantages and disadvantages should be weighed very carefully before reaching a decision about the type of pension plan best suited to an individual. In receiving a large amount of money at the same time, enables a person to invest the money, buy property, or retain control of the principal by securing it in a fixed deposit at a bank.

Buying government bonds guarantee a greater return, and hence more income than the annual monthly payment. However, the dangers are that if the money is not invested wisely, it can run out quickly, leaving the person very few alternatives at the retirement age. On the other hand, a monthly payment ensures that a person receives an income for the rest of his/her life, and has no responsibility or hassles of investing it or managing it. However, to continue receiving monthly payments depends upon the financial health of the company that a person has retired fromTo reach a decision, regarding whether the person should take a lump sum, every factor has to be taken into consideration.

If invested wisely, the amount may in fact grow, and increase the person’s monthly/yearly income, and also fight the effects of inflation as well. A person can calculate the yearly growth of his/her investment, and then decide whether it is worth the risk of foregoing a steady monthly income. However, those retiring from private organizations and those retiring from the government have different calculations. For the government employee, the income is virtually guaranteed. For a private retiree, his/her investment or the economic health of the company is the deciding factor.

Just as important as ensuring your income for life is the matter of when should a person retire? Deciding When to Retire become critical and a person should not just base his decision on one factor but consider every aspect of retirement. A person needs to consider anticipated expenditures, including calculations for contingencies or unexpected occurrences. The amounts of savings that a person has accumulated form an integral part of the decision about the time to retire. A person should also consider any other avenues of income, or how long does a person expect his/her savings to last. Inflation increases the cost of living every year, and that has to consider very critically.