Cash balance retirement plan calculators allow participants in cash balance defined benefit pension plans to calculate the estimated total account value at retirement for participants enrolled in these hybrid retirement plans, which combine features of both defined contribution and traditional defined benefit pension plans. Such plans can be an ideal solution for small businesses that wish to maximize retirement savings quickly.
Cash Balance plans differ from defined contribution plans in that participants are responsible for contributing. Instead, these employer sponsored pension plans offer significant tax-deferred savings opportunities that are particularly appealing to small business owners who have reached their 401(k) maximum contribution limits or older employees with substantial retirement accounts who have already accumulated significant amounts in retirement accounts.
Cash Balance plans can be adopted either independently as pension plans, or combined with existing 401(k)/profit sharing plans to maximize tax-deferred savings opportunities for their employees. Many employers opt to offer both plans simultaneously resulting in significant tax-deferred savings opportunities for both plans.
An actuary is involved when creating a cash balance pension plan and performs calculations to ascertain its total value at retirement for every employee participating. These calculations take into account things like interest crediting rates guaranteed and assumptions regarding investment earnings each year, with annual contributions calculated based on differences between current account value and projected retirement date.
Over time, this gap widens as pay credits and investment earnings accrue to an employee’s account, providing access to its full value at retirement time – whether as a lump sum withdrawal or via an annuity payout plan over their lifetime.
As with defined contribution plans, Cash Balance plans allow their total account value to be invested in low risk, fixed income investments. Such investments offer the added advantage of preserving capital while also offering a consistent and predictable rate of return.
When determining your maximum annual contribution amount to a Cash Balance pension plan, one of the key elements is your projected retirement date. Our calculator uses this information to compute its future value in today’s dollars while factoring in inflationary adjustments.
An annuity formula is then employed to calculate an estimate of monthly cash flows in retirement based on an annuitant’s remaining lifespan and assumed mortality rates at their expected retirement age. This projection can then be done for both male and female participants based on assumed rates at retirement age.