what is pension

A pension is a fund into which amounts are paid regularly during an individuals working career, and from which periodic payments are made to support the persons retirement from work. There are two main types of pensions: defined benefit plans, where defined periodic payments are made in retirement, and defined contribution plans, under which defined amounts are paid in during the working life, and the retirement payments are whatever can be afforded from the fund. Pensions should not be confused with severance pay; the former is usually paid in regular amounts for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment before retirement. A pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension. Pensions may also contain an additional insurance aspect, as they often pay benefits to survivors or disabled beneficiaries. Pensions offer guaranteed income for life, while 401(k) benefits can be depleted and depend on an individuals investment and withdrawal decisions.