Don’t Overlook Retirement Benefits Just Because They’re Not Imminent

No recruiter wants to hear that a job candidate is overly concerned with retirement benefits, yet these benefits should be one of numerous criteria that are part of your framework for making professional decisions. The main distinction to understand is the difference between defined-contribution and defined-benefit pension plans.

As we saw in Chapter 1, defined-benefit plans are rapidly disappearing in the private sector but are still common in government jobs. Even there, though, financially pressed employers are moving away from defined-benefit plans, and employees can be badly hurt by wrong decisions made during plan conversions.

A defined-contribution plan—401(k), 403(b), or similar programs—is generally funded with pre-tax dollars from the employee and in many cases the company. These plans have some attractive features. All contributions made by the employees are their property regardless of future employment. Once the company’s vesting requirements1 are satisfied, the funds contributed by the company also become the property of the employee. The employee has significant flexibility and control over the investment options and the resulting financial performance. The investments grow and compound on a pre-tax basis, accelerating the wealth creation opportunity. And the value of these assets is perfectly visible at all times, which allows employees to periodically rearrange the investments for ...

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