The U.S. Social Security system insures individuals against the risk that they will outlive their ability to support themselves through employment income or private savings. The goal of old-age...

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The U.S. Social Security system insures individuals against the risk that they will outlive their ability to support themselves through employment income or private savings. The goal of old-age insurance is thus income security, which is achieved by providing individuals with annuity payments that begin at a specified retirement age (e.g., 65) and last until they die. A private pension, such as an employer-sponsored retirement plan, is a form of old-age insurance. Employer-sponsored pension plans generally fall into one of two categories. The first is a defined-benefit plan, in which the retired individual receives a predetermined monthly annuity for the rest of his or her life (or his or her spouse's life). The annuity is based on the individual's earnings and/or years of service and may include a cost-of-living adjustment. In the other type, a defined-contribution plan, an employer makes a predetermined contribution to a retirement account on behalf of an individual but does not promise a particular retirement annuity. The individual's retirement account grows over time as contributions are made and investment returns accumulate. The individual's eventual annuity benefit depends on how much the account has grown by the time of his or her retirement. In the United States, 401(k) and 403(b) plans are examples of defined-contribution plans. Historically, defined-benefit plans were the predominant form of private pension plans in the United States, although that has changed in the last several decades. An indication of this shift is the fact that while 65 percent of

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Answered Same Day Dec 21, 2021

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Robert answered on Dec 21 2021

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The U.S. Social Security system insures individuals against the risk that they will outlive their ability to support themselves through employment income or private savings. The goal of old-age...

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