Are you one of the fortunate few who will be able to rely on a pension in retirement? Pensions are quickly disappearing from employer benefit menus. In 1998, 58 percent of Fortune 500 companies offered pensions, also known as defined benefit plans. By 2015 that figure was down to 20 percent.1

The shift away from pensions is largely due to the growing popularity of the 401(k), which is known as a defined contribution plan. In a pension, the employer is responsible for funding the plan and providing a retirement benefit. In a 401(k) and similar plans, the employer may make some contributions, but the funding responsibility largely lies with the employee.

Unfortunately, many employees underfund their defined contribution plans. That’s what makes a pension so valuable. Even if you haven’t put much money away for retirement, you can still count on a steady, reliable source of income after you leave the working world.

While a pension is a valuable benefit, there are some items related to your payment that you may need to plan for. Below are a few planning steps to consider as you approach retirement. These steps will help you get the most out of your benefit and enter retirement with confidence.


Project your pension benefit amount.

The first step in planning your retirement finances and your pension income is to estimate your benefit amount. Your employer’s benefits or human resources department should be able to help with this. It can provide an estimated benefit amount based on your earnings history, your plan balance and your projected retirement date.

Your plan may offer a few different payment options, and your choice could impact your benefit amount. For instance, you might select to receive your payment as long as you live. However, you could also have the option to select a payment that lasts for your lifetime and your spouse’s. Generally, if you choose an income option that will continue for a beneficiary after you pass away, your benefit amount will be lower than it would have been if it lasted only for your lifetime.


Analyze your tax exposure.

Most pension plans are funded with pretax dollars. That means the employer, or possibly you, makes contributions with dollars that have not been taxed. Pension plans are also usually tax-deferred, which means the funds grow inside the plan without facing taxes.

Those funds can’t go untaxed forever, though. If your pension funds haven’t yet been taxed, your payments will likely count as taxable income. It’s important to understand what your tax exposure may be so you can budget accordingly. A financial professional can help you map out your pension and all other taxable income so you can create a tax strategy.


Develop a retirement budget.

Finally, you may find it helpful to create a projected retirement budget. A budget is one of the most powerful financial tools at your disposal. Estimate your fixed expenses, discretionary costs and other bills, such as medical costs and emergencies. Do your pension payments and Social Security benefits cover your cost of living? If so, you can then use your investments and savings to fund other costs or as an emergency reserve.

Ready to develop your retirement income strategy? Let’s talk about it. Contact us today at Trinity Financial. We can help you analyze your needs and create a plan. Let’s connect soon and start the conversation.




Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

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