Career Advice

Whether you’re job searching or currently working, it’s helpful to think about your retirement. Having a pension plan allows you to retire and still receive a monthly income. While pension plans guarantee that you’ll receive income when you retire, not all plans are the same.

You should look into your company’s specific terms to assess whether you’ll have enough money to live off of in retirement. This way, you can set retirement goals that ensure you’ll be able to live comfortably.

How Do Pension Plans Work?

A pension is a retirement fund that you and your employer contribute to while working. Although, your employer covers most of the money being contributed. There are various pension plans that all work differently. Research the type of plan your employer uses to know how you’ll benefit.

You can receive your pension plan payments one of two ways: through an annuity or lump sum. With an annuity, your pension is paid to you over a period of time with fixed monthly payments. If you receive your pension in one lump sum, a one-time payment is paid to you after you’ve retired.

Types of Pension Plans

Public pensions are offered by the government– from the local to the federal level– while private pensions are given through companies. Government employees like teachers, for example, receive a public pension. You’ll receive a private pension plan if you work for a privately owned company. Under the Employee Retirement Income Security Act (ERISA), there are two types of retirement plans: defined benefit plans and defined contribution plans:

• Defined benefit plans guarantee a set monthly amount that’s paid to you on a vested schedule for the rest of your life. These payments are calculated based on your salary and years of service.
• Defined contribution plans are invested by you and your employer and can fluctuate based on the value of the investments. 401(k), 403(b), and profit-sharing plans are all examples of defined contribution plans.

Pensions can be the key to living a comfortable retired life. If you’re a job seeker, ask about a company’s pension plan to see how you’ll benefit in retirement. Consider setting your retirement goals sooner rather than later to ensure you get the most out of your contributions. It’s never too early to think about retirement.