Pension and investments: Crucial for a smooth retired life
We all work towards achieving a smooth and financially secured life even post retirement. That is the age when we want to work as less as possible because our physical abilities are limited. In such times, pension and investments can prove to be the deciding factor that determines how easy life can be.
Pension Plan
A pension plan is a plan to generate some sort of income for working people post their retirement. Via the pension plan, people can invest in different kinds of securities and even own assets directly. Every pension plan has an investment policy statement and the kind of investments that a pension plan undertakes depends solely on it.
Types of pension and investments
In the earlier days, most companies simply promised the pension plan without actually contributing any money towards it. However, now most companies have actuaries and accountants working towards calculating how much it must set aside for its pension plan.
In the earlier years, government bonds or life insurance annuities was the chosen pension and investment option for most companies.
This changed to equities to facilitate bigger returns and to reduce the cost of the pension plan. There were sophisticated plans in place which invested in direct real estate, mortgages and venture capital.
The financial condition of the pension plan
Although every company wishes to do so, it cannot directly invest in markets that offer the best returns but have the maximum risk owing to the prudent nature of pension plans.
A plan that does not have enough invested to cover all its obligations is called as an ‘under funded’ pension plan. The demographics of the members of the pension plan also plays a key role in determining the type of assets that a plan can have.
By Rama Krishna
For more info visit : Pensions and Investments
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