How Are Retirement Benefits Calculated?

Retirement benefits under a defined benefit plan are based on a formula. This formula can provide for a set dollar amount for each year, or it can provide for a specified percentage of earnings. Many plans calculate an owners/employers’ retirement benefit by averaging the length of earnings during the last few years of employment (or, alternatively, averaging their earnings for his or her entire career), taking a specified percentage of the average, and then multiplying it by their number of years of service.