Back in the days of Mad Men, everyone was talking about retirement. What a wonderful day when you could walk away from that corporate job and start living on your pension plan.
Pension plans have largely declined as a mode of compensation. But those lucky enough to obtain a corporate pension plan did so while working at a company for a long time.
The process works like this: The company agrees to incrementally compensate employees ("benefits, baby") by putting money into a retirement account known as a pension. Both companies and employees typically contribute to the pension. It gets invested in the stock market in one form or another, and compounds away with the market. These pensions are usually funded based on the employee’s length of tenure, the employee’s job, and the type of work performed. Like...the more senior you are, the more dough you make, so that 3% a year contribution or whatever the number is...grows.
Watch our videos on this one as it's a controversial topic, with many corporations under-funding pensions, and most governments massively doing the same. Bottom line: If you're counting on your government pension being there when you retire...um, well...Google "Uber driver."
Related or Semi-related Video
Finance: What is a Pension?31 Views
finance a la shmoop. what is a pension? well it rhymes with tension, and likely
for good reason. if you're a teachers pension or a fireman's pension or [person wearing dark glasses writes something down]
another state employees pension that's backed up by a state that's going
bankrupt. Hi, California, Hi Illinois. well we're looking at you. all right people
well a pension is another term for a retirement fund. but what's special about
a pension is that the employer essentially forces you to put away money
for your retirement and then they invested for you.
how nice. or at least be sure you invest it well on a salary of 75 grand a state [gambling table shown]
employed ditch-digger might get a contribution of say 10 grand a year into
her pension, and that's each year 10 grand of forced savings for as long as
she you know digs ditches for the state. and in some states where the unions are
strong in the governing financial knowledge is weak the government
guarantees a minimum financial return on the pension investment made on behalf of
the employees. that is in California for example the state guarantees a 10% per
year return on their invested pension savings. if the invested return like [equation]
investing it in Wall Street and stocks and bonds and private equity funds and
all that stuff well if that invested return is less than that number less
than that 10%, then the state rights to the pinch and a check to cover the
incremental difference. yeah it's a huge Delta and it's well pretty much why you
a Californian Illinois you're going bankrupt remember. Jesus Saves
but Moses invests. [ Moses, holding stone tablets glares and demands interest]
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