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Retirement plans and your employment contract

When you receive an offer of employment, it's natural to turn most of your attention to the here and now. You'll focus on how much money you're earning, the potential for bonuses and the number of vacation days you receive.

While these are all important details, you must also look down the line. For example, your employment contract should include information on any retirement benefits that are made available to you.

Generally speaking, there are two primary types of retirement plans:

  • Defined benefit plan
  • Defined contribution plan

A defined benefit plan promises to pay you a set amount of money upon reaching a predetermined retirement age. For example, your employer may guarantee to pay you $500 per month upon reaching age 65, as long as you are employed by the company for a minimum of five years.

A defined contribution plan does not promise that you'll receive a specific amount of money upon retirement. Instead, these plans are designed to help you save for retirement, such as by matching contributions to a 401(k) plan.

Since it's critical to save money for retirement, pay close attention to the language that outlines the benefits you'll receive during and after your employment.

If your employer attempts to change your retirement benefits while working for the company or after you retire, review your employment contract with an eye toward better understanding if they're able to do so.

Don't let your employer take advantage of you, as this could hinder your ability to retire at your target age and/or live your best life after you hang up your work boots.

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