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A defined benefit (DB) pension pays a guaranteed monthly income in retirement, calculated from your salary, years of service, and an accrual rate set by your employer. Unlike 401(k) plans, the investment risk is borne by the employer, not the employee.
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- 1Annual pension = Final salary × Years of service × Accrual rate
- 2Example: $80,000 salary × 25 years × 1.5% = $30,000/year
- 3Monthly pension = Annual pension / 12
- 4Replacement rate = Annual pension / Pre-retirement salary
- 5Most advisors recommend replacing 70–80% of pre-retirement income
Worked Examples
Инпут
$80,000 salary, 30 years, 2% accrual
Резултат
$48,000/year ($4,000/month)
100% replacement if salary unchanged
Инпут
$60,000 salary, 20 years, 1.5% accrual
Резултат
$18,000/year ($1,500/month)
30% replacement rate — supplement needed