Will Your Pension
Be Enough?
Pensions have been a popular retirement benefit for many years. The amount of money you receive from your pension plan usually depends on several factors, including your length of service, your age at retirement, and your salary. As you approach retirement age, you may wonder if your pension will be enough to provide for your income needs during retirement. This is a common concern as people live longer and the cost of living rises. For some, their pension may be enough to live comfortably in retirement, but it may fall short for others.
Different Types of Retirement Plans
There are two main types of retirement plans: defined benefit plans (commonly known as pension plans) and defined contribution plans. A defined benefit plan provides a specific income for life, typically based on a formula that ordinarily considers such factors as salary, years of service, and a predetermined benefit accrual rate. A defined contribution plan is based on the amount you and your employer contribute, how early you start investing, and the performance of the investments within the plan.
If you participate in a defined benefit plan, you should have a guaranteed retirement income equal to about half your working income.1 This may help you be in a better position to have a secure retirement income. However, if you only have a defined contribution plan, you must actively manage your retirement savings. You will need to ensure that you contribute enough to your plan and manage your investments, so they perform well enough for you to meet your savings goal. It's also important to review your plan regularly and make any necessary adjustments to help you stay on track and meet your retirement goals.
Learn more about the different types of pensions
Multiple Income Sources
To help you meet your goals, consider using multiple sources of retirement income. For example, if you participate in a pension plan and a defined contribution plan, you may be in the best position to have a secure retirement income. These two plans in addition to any Social Security benefits that may be available can provide a significant source of income in retirement. Some employees of governmental entities do not contribute to Social Security which may decrease the Social Security benefits available to you. Personal savings, such as a Traditional IRA or Roth IRA can also provide a source of income in retirement, especially if you start saving early and contribute regularly.
A 403(b) plan is a defined contribution plan for certain employees of public schools and tax-exempt organizations. It allows you to contribute pre-tax dollars to the plan, which can be invested in various investment options like mutual funds and annuities. Contributing to a 403(b) plan can increase your retirement savings and supplement your pension income. It is important to note that while a 403(b) plan can be an excellent option for some, there may be better options for others. Think about your financial situation and goals before deciding about your retirement savings.
Carefully consider the type of retirement plans you have available to you, actively manage your retirement savings, and explore other potential sources of income to help ensure a secure and comfortable retirement. Want to check your progress? Use our retirement calculator to see if you're on track and what you can do to improve your financial outlook.
This blog is up to date as of October 2024 and has not been updated for changes in the law, administration or current events.
