How do I model a Defined Benefit Pension?
Published Mar 11, 2025
A defined benefit pension plan is a type of retirement plan where an employer promises a specific monthly benefit amount to an employee upon retirement.
To model a Defined Benefit pension:
- Navigate to the Income section of your plan.
- Add a new Salary event.
- After inputting your salary Starting Amount, Years in Effect, Change Over Time, and Tax Handling, scroll down to “More Options” and toggle on “Has Defined Benefit Pension.”
- Next, input your Yearly contribution:
- Either as a % of Wages for any year the salary is active, or as an Amount in Today’s Currency. (Learn more about the difference between Today’s and Actual Currency in ProjectionLab)
- Choose a Payouts Start date (by age/calendar year, or milestone), and then select a Payouts End date.
- When payouts begin, select the payout calculation method:
- Yearly Payout Type:
- % of Final Pay: Enter the percentage of your last paycheck you’ll receive during the defined payout period.
- % of Career Average Pay: Enter the payout percentage you will receive of the average value of this salary across plan years from its Start to End ages.
- Amount in Today’s Currency: Enter your expected annual benefit amount in current dollars (this will also adjust for inflation).
- Percent Received: Specify how much of the defined benefit pension you expect to receive for the options % of Final Pay or % of Career Average Pay.
- Payouts are Tax Free: Check this box if your pension payouts are tax-free.
