Episode notes
Join us as we decode the complex mechanics of retirement funding by comparing the two dominant pension systems: Defined Benefit (DB) and Defined Contribution (DC) plans.
We begin by exploring the traditional Defined Benefit plan, where an employer promises a specific, lifetime payout calculated through a formula based on tenure, age, and salary. We discuss how these plans—common in the public sector—place the burden of investment risk and longevity on the employer. We also break down the difference between "funded" plans and "unfunded" pay-as-you-go systems, where current workers pay for current retirees.
Next, we shift to the Defined Contribution plan (such as the 401(k) in the U.S.), which has become the primary model for the private sector. You’ll learn how these individual accounts base benefits s ...