Retirement, Investments, & Insurance for Individuals Build your knowledge How does a defined benefit plan work with other retirement savings?

How does a defined benefit plan work with other retirement savings?

Along with other accounts such as 401(k)s and IRAs, defined benefit plans help build the savings you need for retirement.

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Saving for retirement looks different for everyone—and changes over time.

For example, if you’ve had an employer that offers a defined benefit plan (sometimes referred to as a pension), figuring out how that works with other retirement income sources such as 401(k)s, IRAs, and Social Security can help you better plan for post-work years.

Here’s what to consider.

Is a defined benefit plan a retirement account?

Yes. One difference between a defined benefit plan and a defined contribution plan is the employer sets up and contributes to the former, while both employee and employer contribute to the latter. In addition, unlike a defined contribution plan, you do not have the ability to choose or change investments in a defined benefit plan. Learn more about defined benefit plans.

When does defined benefit plan eligibility kick in?

In general, before you’re eligible for an employer-sponsored defined benefit plan, you must work a certain length of time at the company; this is called vesting. After you’ve vested, you’re generally eligible for defined benefit plan payouts after age 62 or 65, but every plan has different limits and options.

Unlike quarterly updates from defined contribution plans, defined benefit plans generally send out a statement just once a year. In addition, the plan administrator updates expected payout amounts yearly based on your continuing tenure with your employer and any salary changes.

How do defined benefit plans work with 401(k)s and IRAs?

Many people have several employers over the course of a lifetime, which means they may have several sources of retirement savings. You might have:

In addition, you’re typically eligible for Social Security benefits once you reach age 62.

If you’ve saved in multiple retirement accounts, you’re eligible for distributions or payouts from all of them at once. For example, if you’ve saved in a 401(k) and have a defined benefit plan, you may take the amount allowed by each when it’s allowed. Generally, a distribution from one retirement plan doesn’t reduce the payout from another one.

How do defined benefit plans work with Social Security?

That depends on when you retire. If you stop working before turning age 62, you can elect a Social Security adjustment if your defined benefit plan offers it, says Sharyl Priester, senior learning and development specialist with Principal®.  Not every plan does.

That adjustment provides a payout from your defined benefit plan that includes additional compensation for the future Social Security benefit. Once you reach the age of Social Security eligibility and begin to receive those benefits, the defined benefit payout will decrease.

Read more to get answers to questions about defined benefit plans, including potential beneficiaries.


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