A Guide on How to Get a Pension

FT Contributor
A notebook labeled "pension" lies next to a calculator and pen.
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Pension plans are also commonly referred to as “defined benefit retirement plans” because they provide you with a guaranteed source of retirement income when you’re eligible to stop working. If you qualify for a pension plan with your employer and you continue to work, your pension plan grows.

When you’re eligible to retire after working for your employer for a number of specified years, you begin receiving guaranteed payments from your pension plan to cover your living expenses. The amount of pension you receive is always the same each month and is paid out until you pass away.

Employees benefit from pension plans because if they work for the same employer for a number of years, monthly pension payments are usually generous. If your employer offers a pension plan, it’s important to understand how to participate in this beneficial program. If you don’t work for an employer that offers a pension, there may be other ways to ensure you get a pension when you stop working.

Through an Employer

The easiest way to participate in a pension plan is to obtain employment through an employer that offers this retirement savings plan. Not all employers offer pension plans, but they are most common with the following:

  • Federal or state government jobs: This includes positions you may obtain with the military, police, or fire department. It also includes social assistance jobs or positions teaching at universities or local schools.
  • Private corporations: Large corporations often offer workers pension plans, but you may need to discuss these benefits with specific companies before accepting employment.
  • Unions: When you join a union, it may negotiate with employers on your behalf to ensure they offer pension plans to workers.
  • Specific industries: It’s more likely that you’ll work for an employer that offers a pension plan if you work in the credit intermediation, insurance, manufacturing, or information services sectors.

You’re also more likely to qualify for a pension if you work a full-time job for an employer that offers other benefits. To qualify for a pension with your employer, you must work there for a certain number of consecutive years. Be ready to commit to full-time work with your employer if you want to qualify for pension payments when you retire.

Create Your Own Pension

If seeking employment with an employer that offers a pension plan isn’t an option, you can create your own pension. You’ll need to use your savings to generate enough retirement income that you can create a steady stream of income when you quit working.

To ensure your pension plan will last throughout your retirement, you must have financial discipline throughout your working years. Dedicating money regularly to your retirement savings plan is important so that the flow of income you create when you stop working is substantial and can help cover your expenses in retirement.

A 401(k) is different from a pension plan, as are other retirement savings plans, such as an individual retirement account (IRA). However, these savings plans play an integral part in creating your own pension. To ensure you successfully create a pension plan that consistently pays you during your retirement years, you must:

  1. Contribute to retirement savings vehicles, such as 401(k) savings plans or IRA accounts, throughout your working years.
  2. Buy an immediate annuity with your retirement savings, which acts similar to a pension plan by paying out a certain agreed-upon amount each year.
  3. Attempt to delay your Social Security benefits if possible to ensure your benefit payment is maxed out.

When you buy an annuity, you’re guaranteed specific payments each year when you retire for the rest of your life. Since they provide this guaranteed income, annuities are expensive. Therefore, saving through different retirement vehicles and using this money to purchase your annuity ensures you have the savings you need.

It’s important to take note of the fees associated with this retirement vehicle and to ensure you understand exactly what your payout will be so you can budget appropriately.

If you can live off your annuity and other retirement income to delay your Social Security benefits, you’ll qualify for a delayed retirement credit. When you do claim your benefits, the payout is higher each month and offers another steady stream of income throughout your retirement years.

Talk With Your Spouse

If your spouse works for an employer that provides a pension plan, you may be able to join in on the plan. If your spouse’s employer participates in a traditional pension plan for employees, you may qualify to receive pension payments for the rest of your life after your spouse passes away.

These survivor’s pension benefits are generally a bit less than the payments your spouse was receiving but can still help supplement your retirement income. To ensure you qualify for these survivor’s pension benefits, your spouse must choose the joint/survivor option when setting up the pension plan with their employer. Speak with your spouse about their pension plan to ensure the correct plan is in force.

Speak With a Financial Advisor

A financial advisor is well-versed in retirement savings plans and could be a helpful resource when deciding the best retirement income streams for your situation. Whether your employer offers a pension plan, your spouse’s employer offers a plan that includes you, or you want to create your own pension plan, a financial advisor can help ensure you’ll have enough retirement income to stop working when you want.

If you decide to speak with a financial advisor about your retirement income options, be prepared to review your current financial status and the retirement savings you’ve already collected. The advisor may suggest additional retirement savings plans or annuities so you can achieve a steady stream of income similar to a pension plan after you stop working.

A pension plan is a valuable source of retirement income because it provides a steady stream of income you can depend on. If your employer offers a pension plan and you qualify for pension payments, a substantial portion of your retirement income may be provided when you retire.

If you don’t qualify for a pension plan through your employer, you can create your own by contributing to a retirement savings plan. It’s also important to understand your spouse’s employer benefits and how they affect your retirement plan.

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