Types of Retirement Plans

Part One: Defined Benefit Plans and Defined Contribution Plans

     If you are planning to retire soon, there are some aspects you have to consider, like the age of retirement and the types of retirement plans that are available. A retirement plan is a financial arrangement set up by employers, insurance companies, the government or other institutions. They are designed to replace employment income upon retirement. In this article we will cover some types of retirement plans available in the U.S.

Retirement plans are classified depending on how benefits are determined, and they are either defined benefit plans or defined contribution plans. Other plans combine the characteristics of these two types of retirement plans.

Medicare Supplement plans 2019

Defined Benefit Plans

     Defined benefit plans, also known as pensions, pay retirement benefits from a trust fund using a formula that considers factors like salary and service, and it is set by the sponsor of the plan. Less commonly, there are defined benefit plans that pay a specified monthly retirement benefit, and the plan promises the benefit as an exact dollar amount per month when retiring. As payments are made from a trust fund specially made for the plan, separate or Individual Retirement Accounts (IRAs) do not exist.

Benefits of defined plans are protected by federal insurance provided through the Pension Benefit Guaranty Corporation (PBGC). This usually applies within certain limitations and for the most traditional plans.

Most defined pension plans offered by the government and large businesses are “final average pay” (FAP) plans, which means that the monthly benefit equals the number of years of work multiplied by the person’s salary at retirement multiplied by a factor known as the “accrual rate”.

These plans can be funded or unfunded. If they are funded, contributions from the employer and participants are invested into a trust fund dedicated only to paying benefits to retirees under the plan. Plans must maintain adequate funding to be qualified.

If the plans are unfunded, no funds are set aside for the purpose of paying retirements benefits. The benefits will be paid immediately by contributions to the plan or by general assets. Nonqualified plans are unfunded, like Social Security.

     Defined Contribution Plans

     The main difference between these two types of retirement plans is that Defined Contribution Plans do have separate or individual accounts for each participant and they do not promise a specific amount of benefits at retirement.

And don’t forget to add an insurance plan like a Medicare Supplement plans 2019.  A quote can be obtained by visiting http://www.Medigapplansguide.com

Defined Contribution Plans are employer-sponsored plans in which the retirement benefit of the participant depends on the amount of money contributed into the account and investment gains on those funds, less any losses or expenses charges. The contributions that were made into the account are invested and the returns of that investment are deducted from the individual’s account. Depending on the value of the investments, the value of the accounts will change.

When the person retires, his or her account is used to provide him or her retirement benefits, usually through the purchase of an annuity, which is a series of payments at fixed intervals that are paid while the person is alive.

Defined Contribution Plans have gained popularity recently and nowadays they are the most common among the private sector. This happens because a good number of employers see defined benefit plans as a financial risk and they prefer to offer defined contribution plans.

Some common defined contribution plans are Individual Retirement Arrangements (IRAs), 401(k) plans, 403(b) plans and profit sharing plans.

 

 

Medicare supplement plans vs. Advantage plans

Medicare supplement plans are designed to pay for some of the Healthcare which is not covered by Medicare plan. It generally does not provide stand-alone benefits means a person needs to be enrolled and stay in basic Medicare plan in order to avail the facility of Medicare supplement plans.  However, the premium for Medicare supplement plan is much higher than the basic Medicare policies. But before purchasing any kind of Medicare supplement plan it is compulsory to have a basic Medicare policy.   The Medicare supplement plans are acting like a supplement to the original Medicare plans they have significance of their own which cannot be ignored. It provides numerous additional benefits over the basic Medicare plan. There are in total 10 different Medicare supplement plans available in the market. These are lettered from A-N (ruling out E, H, I &J) each with an entirely different range of medical facilities and coverage based on different monthly premium.

Medicare Advantage plan

Medicare Advantage plan is just another way of getting your Medicare coverage. This plan is all about getting benefits for part A & B of Medicare through a Medicare-approved private insurance company. Some of the Medicare advantage plans besides providing benefits for part A and B of Medicare policy also provide certain additional benefits such as prescription drug coverage, routine dental service, fitness programs etc. For quotes on AARP Medigap plans visit https://www.medisupps.com/

When an individual enrolls in a Medicare advantage plan he or she is still a member of Medicare program and is bound to pay the monthly Medicare part B premium, however, these services are controlled and administered under single policy only.  There are many different types of Medicare Advantage plans which are described below

1) Maintenance organizations which requires individual to utilize Healthcare providers in a designated plan network.

2) Preferred provider organization cover more of the medical costs if the individual stays inside the network.

3) Shall meet plans are Taylor plant specifically designed for beneficiaries with certain health conditions

Comparison between Medicare supplement plan & advantage plan

Medicare supplement plan works in tandem with original Medicare coverage. These plans have the significant difference when it comes to cost-benefit and functioning. Whereas on the other side Medicare advantage plan offers an alternative way to receive our Medicare benefits through a Medicare-approved private insurance company.

Depending on the plan Medicare advantage can offer certain additional benefits beyond part A and part B benefits. Whereas Medicare supplement plan isn’t a comprehensive medical coverage rather it is a supplemental coverage to original Medicare.