this post was submitted on 30 Jun 2025
16 points (100.0% liked)
Personal Finance
4697 readers
2 users here now
Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. Join our community, read the PF Wiki, and get on top of your finances!
Note: This community is not region centric, so if you are posting anything specific to a certain region, kindly specify that in the title (something like [USA], [EU], [AUS] etc.)
founded 2 years ago
MODERATORS
you are viewing a single comment's thread
view the rest of the comments
view the rest of the comments
SS is a defined benefit administered (and guaranteed) by an independent agent. Pension is a defined benefit administered by employer (or PBGC). Seems pretty similar to me.
Annuity is a defined contribution disbursed formulaically by a company you hired. The only similarity is the regular payment.
It's only defined once you start taking it, until then, all we have are estimates. It's somewhere in the middle of "defined benefit" and "defined contribution."
It can be defined benefit or defined contribution, depending on how it's configured. Your benefits are directly calculated based on how much you put in, whereas Social Security benefits taper off the more you put in, and after a certain point you can't pay any more in.
A pension pays out assets it has, Social Security pays out based on policy. A pension can go bankrupt if it's poorly run, Social Security instead operates based on law (which can be changed), which is technically unrelated to tax receipts and fund performance.
They're quite different systems IMO, and the main similarity is the regular payment, hence why I brought up annuities.
The main difference is who bears the risk. For pensions, it's the employer, who has to make extra payments if the pension fund falls behind it projected obligations, or surrender its management to PBGC. That open-ended risk is why most companies have abandoned pensions. For SS, it's the government (although they do have the power to change their legal obligation). For annuities, it's the recipient, who will just get less money if the annuity's investments underperform during the accumulation phase.
To me, that's a pretty big difference between each product.