In this chapter:
Introduction
Retirement savings plans
The 401(k) plan
IRAs
Roth IRAs
The IRA decision
How your savings grow
Some (minor) drawbacks
Dividing your savings
Inflation & taxation
A newfangled pension
Questions & answers
Security and your 401(k)
The scoop on IRAs
Your savings priorities
If you're self-employed
Financial cramming
 

A New Type of Old-Fashioned Pension

At the beginning of this chapter, I mentioned that old-fashioned defined benefit pension plans were on the verge of disappearing. That’s true, but employers have not stopped offering pension plans altogether. The new trend is toward something called cash balance plans, and for many younger workers these plans may actually be an improvement over the old versions. Traditional pensions used to reward employees for staying with their companies for a long time, and your promised pension would spike up dramatically as you neared retirement. But today, most people do not plan to spend the rest of their lives at the same company, and cash balance plans address that reality. In practice, they look a bit like 401(k)s, but since it’s a pension plan your company is footing the bill, not you. Your employer simply puts a given amount of money—typically 5% of your salary—towards your pension every year, and you can monitor your "account" to keep track of what you’ve accumulated in benefits. Seniority doesn’t enter the picture, which means two things: younger workers can accumulate benefits earlier than they use to, and they can also move from job to job more easily without worrying about staying at the same company long enough to qualify for pension benefits. If your employer offers you the chance to switch from a defined benefit plan to a cash balance plan, odds are you should take it.