Is deferred compensation for you?

Written by
Peter Dunn

Dear Pete,

I'm looking for some direction and advice on the pros and cons of deferred compensation. This has become an option for my wife but I have no idea how to decide.

As always, thanks for your help!


Great question Todd. Since I don't have a lot of information about your wife's work situation I'll have to answer vaguely, but as you'll see this is a pretty cut and dry answer so it works out.

First, though, I want to be sure to define deferred compensation. For those who don't know, deferred compensation is an arrangement you have with your employer where a portion of your earned income is paid out at a later date. This most often takes the form of a pension, a retirement plan, or employee stock options. The reason employers generally do this is to save themselves some cash in the present. The reason employees generally agree to it is it functions as a forced savings plan.

Knowing all this, I am in favor of deferred compensation plans. Especially if you have trouble saving money. Though of course, deferred comp is no excuse to not learn how to save. It's simply a smart backup plan.

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