What are Allocated Benefits?

by Investing School on July 23, 2012

Allocated benefits are a type of payment that is paid from a defined-benefit retirement account or plan. These benefits are passed on to those participating in the plan, once an insurance company has received all of its premiums. Such benefits are designed to provide a guaranteed income during retirement allowing participants to plan on a specific level of cash flow. The plan is backed by the insurance carrier which hosts the plan.

The greatest advantage with such plans is that the benefits are certain to be there when needed as long as the investor has paid the premiums as contracted. Even if the former employee who originates the plan goes bankrupt, the funds will be available and the benefits paid out. Such payments are regulated under the guidelines of ERISA.

The advantage to such allocated benefits is clear. As long as you have paid your premiums as dictated by the agreement you will have your income when you retire. In an economic age when very few things are certain it is reassuring to know that some arrangements are absolute. Furthermore, since these funds are not dependent upon your former employer remaining solvent, there is even less worry about your retirement funds.

With a certain level of income assured at retirement it is easier to plan for such a time. Estimates of Social Security payments along with allocated benefits can significantly reduce dependence upon other, less certain investment pools. This may allow a retiree to delay withdrawal from some retirement accounts, allowing them to grow for a few more years.

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