A monthly cash amount may be provided for, such as $250 a month, but a formula using factors such as your income, age and length of employment is more common.įor example, the pension benefit formula could be: one percent of your average salary for three years leading up to retirement, multiplied by the number of years you worked. One of the two fundamental types of pensions, a defined-benefit plan spells out what you'll receive as a benefit after retirement. Employee Stock Ownership Plan ( ESOP) and Profit-Sharing Plans.Simplified Employee Pension Plans (SEPs).Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRAs.An employer, an employee or a combination of both can fund pensions. Because there are so many types of pension plans, it's important to understand the basics first before planning for your financial future.Īlthough the terms ' retirement plan' and 'pension plan' are largely interchangeable, pension usually describes a plan based around employment, whether it's through your employer for or a work-related organization like a labor union. When it comes to true savings, interest-bearing investments are the way to make money grow before you clock out for the last time. While some people still stash cash under their mattresses for retirement, the majority know there are more springs than savings under there.