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What Is a Pension Plan?

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  • What Is a Pension Plan?

    A pension plan is a financial arrangement that allows people to receive a regular income after retirement. These are monetary plans that are used as retirement plans. However, a pension plan can be received upon cases of disability. A pension plan can be received by the plan holder over a period of time and it comes in monthly installments.

    It should not be misconceived as a severance package. In severance benefits, the plan holder receives a lump sum amount with corresponding taxes. On the other hand, a pension plan is built up over several years and most often it doesn't incur taxes and interest during the plan is funded.

    This kind of plan helps a lot, especially to those with children and family members dependent on them. They can continue to provide monetary support even after retirement. In most cases, plan holders usually keep and intend to give this to their loved ones. They want to provide a financial security to their family after retirement and even after death.

    In some countries, the government creates and maintains a pension plan program for their citizens. With this type of program, a certain deduction from wages and salary over the years of working are credited to the person's pension plan account or to the taxpayer. Upon reaching a legal age for retirement, the individual can apply for the government's pension program, thus receiving monthly payments based on the income level of the person over his working life.

    It is important to acquire a pension plan program to ensure that a person can still support himself even after retirement and provide financial support to families and dependents even after death. This form of financial plan is also a form of security for individuals.

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