(877)328-4037
What Is A Pension?
A pension is a steady payment you receive over a stated amount of time from a fund set up by your employer. Throughout your employment, you’ll make contributions to your pension, which the pension manager will pool with funds from other employees in a trust. The trust will grow according to the goals of the pension. The income you get after you retire is usually based on two things: your average salary over a certain period of your employment (for example, the last three years) and the number of years you were employed with that company.
Once you retire, you’ll be offered a choice of whether to take the lump sum you’re due, or keep the stream of payments originally outlined when you signed up. While the lump sum is tempting, it can quickly be depleted without careful planning, so choose which payout is best for you based on a reasonable guess of life expectancy. Something to keep in mind: pensions are now relatively rare, and some publicly funded ones are struggling. If a pension fund is in trouble, a lump sum payment may be a safer bet than an income payment.
If your company doesn’t offer a pension, you can create a “personal pension” using an annuity. There are many different types of annuities and these instruments can be hard to understand. Work with a fiduciary advisor, ideally a CFP®, if you’re considering this option.
