What is a pension

A pension is in a lot of ways like Social Security. It is a benefit you have earned and are entitled to at some point.

However, pensions can differ from Social Security in a lot of ways. Credit Risk of the underlying institution and more distribution options, such as

Examples:

• Period Certain,
• Pop Ups,
• Higher Early Benefits,
• Single Life,
• Options for Survivor %

Common to have a cash-out option, more survivorship options, and less likely to get a COLI

Like Social Security, when selecting benefits, you must consider different variables. Because pensions offer different options, it is more complicated.

Examples:

• Cash-out option – needs, tax brackets, other assets, investment profile
• Survivorship – survivor needs, other alternatives for the survivor, reduction on benefits due to survivorship option
• Credit Risk – you are tethering yourself long-term to the financial management of the entity backing the pension
• Early Retirement – pensions are designed (specific to each institution) to promote the retirement behaviors that the entity desires. For every pension plan, there is a sweet spot. That is where you can get the maximum benefits you are entitled to. There are often cliffs built in. So if you are too early, you get a significant reduction, penalizing you. And if you are too late, benefits flatten out and stop growing, essentially giving you no additional value to keep working.

A Real Example of Planning At Work! Retiree age 55 with a cash option pension, cash, IRA, and 401k.
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