Financial Analysis. Lesson 44. Pension Funds and Retirement Planning

Financial Analysis. Lesson 44. Pension Funds and Retirement Planning

1. Pension funds are investment pools providing income during retirement.

2. Defined benefit plan guarantees specific payouts based on salary and tenure.

3. Defined contribution plan allows contributions but does not guarantee future benefits.

4. 401(k) plan is a U.S. employer-sponsored retirement savings plan with tax benefits.

5. Individual Retirement Account (IRA) allows individuals to save with tax advantages.

6. Annuity provides regular payments to retirees for a specified period.

7. Vesting determines when employees gain full ownership of retirement benefits.

8. Pension liability is the employer's obligation to fund future retirement payments.

9. Funded status compares pension assets to liabilities, indicating shortfall or surplus.

10. Pension fund asset allocation balances investments to ensure future payouts.

11. Contribution rate specifies the percentage of salary invested in the plan.

12. Pension protection ensures fund stability to secure retiree benefits.

13. Actuarial valuation estimates future liabilities to determine fund solvency.

14. Life expectancy affects retirement planning by estimating years of payouts.

15. Replacement ratio calculates retirement income as a percentage of pre-retirement salary.

16. Income stream is the regular flow of income from retirement plans.

17. Deferred compensation delays income until retirement to reduce tax burden.

18. Early withdrawal penalty applies for withdrawing retirement funds before a certain age.

19. Social Security provides government-backed income for retirees in many countries.

20. Asset-liability matching aligns investments with expected future payouts.

21. Inflation risk reduces purchasing power of fixed retirement income over time.

22. Longevity risk is the possibility of outliving retirement savings.

23. Target-date fund adjusts asset allocation based on retirement timeline.

24. Fixed annuity provides guaranteed payouts for a retiree’s lifetime.

25. Variable annuity offers payouts tied to investment performance within the plan.

26. Defined benefit obligation (DBO) measures pension liabilities under accounting standards.

27. Contribution holiday pauses pension contributions when fund surplus is sufficient.

28. Funding ratio divides assets by liabilities to assess pension health.

29. Portable benefits allow employees to transfer retirement funds between jobs.

30. Retirement income planning estimates savings needed to maintain lifestyle in retirement.

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Technical Examples:

1. Defined benefit obligation (DBO) estimates employer liabilities for future retirement payouts.

2. Asset-liability matching aligns pension investments with future payment obligations.

3. Target-date funds automatically adjust risk levels as retirement approaches.