If you pay into a pension for so many years, but end up living a long time then you will have likely gone through the principal as well as any interest earned. How do retirement systems fund this if you’ve drawn more than you’ve saved over the years?
In: Other
Actuarial tables.
Pensions earn a significant growth amount over the life of the participant, compounding interest as it goes. Your savings and others grow together with an estimated generalized death date. Some members live longer, some don’t and actuarial tables allow you to plan for the “odds” of the group’s longevity.
The estimated payout amounts are based on that generalized longevity along with the balance of the account itself. Pensions are worked to avoid underfunding (a pension shortfall) however a pension hit by a shortfall will fail to pay out.
Latest Answers