Saving for Retirement Pension
This is a retirement bucket most of us will not have. Through the 50s, 60s, 70s, and into the 80s, they were about as normal and expected as having access to an employer 401K is today. But no more. Pensions are much like dinosaurs, something most Millennials only read about now. Companies have ditched them due to the high legacy cost; they are risky and expensive to manage. With a 401K the responsibility moves from the employer to the employee and companies no longer have to deal with those financial obligations for decades to come. Remember, we are living much longer now.
I recently received a letter in the mail from my former employer telling me, for a very limited time, about 6 weeks, I had the option to take my pension as a lump sum. My former employer did just what many are doing and have done, they eliminated their pension and moved to what they called an Incentive Savings Plan, more of a hybrid pension plan. I called them and requested they send me an estimate of what my monthly pension would be if I waited until age 62. Once I received that letter, I was able to crunch the numbers and I could see that waiting for my monthly benefit was best, so I passed on the lump sum.
A pension works much like an annuity and SS, and in-fact, many people will describe purchasing an annuity as building your own pension. With a pension you receive a monthly benefit for life. Eligibility age often ranges from 55-65 and like SS, if taken early, your benefit will likely be reduced. Due to my company switching plans and my relatively short tenure (11+ years) with them, my pension will be small. However, those who have worked their entire careers, possibly as a teacher or with the government, a pension will be an important and critical part of their retirement plan. It might even allow them to retire younger than the traditional age of 65. You should count yourself as fortunate if you have a pension awaiting you! I attached an article I saw the day after writing this. Start a conversation, what questions do you have for me?