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Financial Education for Everyone

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Get the most from your pension

September 21, 2007

If you're among the nearly 44 million Americans eligible for an employer-provided pension plan, consider yourself lucky: Since 1980, such plans have decreased by nearly 80 percent. And, while more companies now offer 401(k) or other plans, where employees themselves fund some or all of the savings, about half of Americans have no employer-sponsored retirement plan at all.

Probably the best retirement savings advice I'd offer is, "Don't put all your eggs in one basket." Between disappearing pension plans, Social Security's uncertain future and historically low personal savings rates, your smartest move is to save as much as you can, beginning as soon as possible, and using whatever means available – whether it's an employer plan, a traditional or Roth IRA, or regular after-tax savings.

If you do have pension benefits through your current or past employers, here are a few considerations:

With traditional pensions, also called defined benefit plans, your employer sets aside and manages money on your behalf and then guarantees you a specific benefit amount upon retirement. Your pension amount likely depends on years of service, age at retirement and your earnings at that job.

Your pension plan administrator should provide a summary plan description (SPD) that explains key information such as vesting requirements, pension calculation formulas, payment options and more. Carefully review it and if you don't understand something, ask.

The administrator should also send you an annual statement with updated benefit estimates. Check it for accuracy, especially the income level used to calculate your benefit. Also, let them know about any life changes that may affect your benefit, including marriage, divorce, death of spouse, etc.

Review your plan documents to make sure you understand the definitions of normal retirement age (commonly 65), early retirement, deferred retirement (working past normal retirement age), spousal death benefits (if you should die) and what happens if you leave the company before retirement age.

Make sure you understand the different payment options available to you. Because so much hinges on choosing the right benefit payment option, you may want to confer with a financial advisor to determine which is best for your situation. Common payment options include:

  • Single life annuity: You receive a fixed monthly benefit until you die; then no further payments are made to your survivors. Commonly, if you're married, your spouse must agree in writing to this option.
  • Qualified joint and survivor annuity: You receive a fixed monthly benefit until death; then your surviving spouse receives a benefit (amounts vary among plans) until his or her death.
  • Lump sum: Some plans allow you to receive the entire value of your benefit at retirement, with no further payments. Then, it's up to you to invest the money. Again, consult a financial advisor before choosing this option.

If you've held numerous jobs throughout your career, keep track of any pensions for which you may be eligible. If you've lost track of the company or it has gone out of business, contact the Pension Benefit Guaranty Corporation (PBGC), the federal government corporation that protects and guarantees pension plans, for assistance (www.pbgc.gov).

Other good sources of information on pensions and retirement planning are AARP (www.aarp.org) and Practical Money Skills for Life, a free personal financial management site sponsored by Visa Inc. (www.practicalmoneyskills.com/retirement.)

Bottom line: It's your retirement future – you need to actively manage how you're going to pay for it.


This article is intended to provide general information and should not be considered health, legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.