Target-Benefit Plan

You’ll hear target-benefit plan in talks about retirement savings and pension plans. Target-benefit plans are pension plans that are funded with fixed contributions based on projected retirement benefits, just like defined benefit plans.

Target-benefit plans sound nice...right on target, right? Wrong.

Target-benefit plans are sketchier than defined benefit plans because once you retire, the payouts you get from a target-benefit plan are based on how well those investments are doing at the time. If the stock market took a dive during your payout period in retirement, so would your target-benefit plan distributions. Watch out, because target-benefit plans sometimes miss the mark, depending on the economy’s cycles.