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Scott Thomas, ChFC®, CAP®, CKA®, RICP®

Four Types of Pensions

Four Types of Pensions

Origin of pension

1325–75; Middle English (< Old French pensïon) < Latin pēnsiōn- (stem of pēnsiō) a weighing out, hence, a paying out, installment paying, equivalent to pēns(us) (past participle of pendere to weigh out, pay by weight, equivalent to pend- verb stem + -tus past participle suffix, with dt > s) + -iōn

First type of pension is governmental promise such Federal or State retirement benefits. Work for number of years and multiplied by factor and matched up to earnings to determine a formula of payouts.

Second Type is commercial or company pension also called defined benefit plan and investments and or insurance are not tied to governmental taxes.  Pension Benefit Guarantee Corporation helps insure most of the benefits.  A few decades back these were common in work place, however not very common today.

Third Type is charitable pension. Person has charitable intent and wants to give to a qualified charity and also desires to receive back income for period or for life or for joint life.  There is partial tax deduction upfront for this type. Unique opportunity for those with highly appreciated assets like stock or real estate the capital gains are lessened greatly and spread out over lifetime instead of taxed upfront.

Fourth Type is a private pension to purchase annuity or life insurance with provision to pay income over lifetime or certain period.  There are not upfront tax breaks like in the third type, but if you can fund over a longer period of time the back side payments could be more tax advantaged than all three of the other pensions.  Requires planning ahead and proper design to work efficiently.  Doing this type incorrectly has be inefficient and having a review of current planning can be money well invested.

I do not work with the first type, but can offer you consulting services for types two, three and four.

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