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Large or small, many people have pensions that need to be taken into consideration when planning for retirement. A pension is a promise from an employer to pay you a certain amount of money each month after you retire.

The amount and number of years it will take to receive this monthly payment (also known as the payback period) varies depending on the type of pension plan. However, most plans require employees to meet minimum age and service requirements in order to receive payments. Some employers offer different types of pension plans, including defined benefit and defined contribution plans.

Defined Benefit Plan

A defined benefit plan is the traditional type of pension in which your employer calculates a specific amount they will pay you each month in retirement. However, these calculations are complex, so it's difficult to know exactly what your pension will be worth. One thing is certain, however- the pension amount will depend on your years of service and your average salary during your employment period. If you leave prior to retirement, you may not receive any type of payment from this plan.

Defined Contribution Plan

A defined contribution plan, also known as a money purchase plan, is different from a defined benefit plan in that the amount you receive as a pension will depend on the contributions from your employer and any investment earnings. In this type of pension, it's also possible to leave your money with the current employer or transfer it to another plan.

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