Considering a Job with a Pension Plan? What to Know Before You’re Hired

If you are applying for jobs and you aren’t sure if choosing an employer who offers a pension is significantly beneficial over an employer without that option, it’s important to understand what a pension is. A pension plan can be a great tool for your retirement and can be the sole source of income for many after they are done working.

With a pension, the employer will pay you a defined amount of money after you retire for the time that you spent as an employee at their company. This payment will be for the rest of your life, so can be used to support you throughout your retirement years. This is much different than a 401k plan, where you invest the money and the employee only matches a small percentage.

When you are ready to end your employment, you should be able to choose either a lump sum, or reoccurring payments either monthly or annually. Some pensions allow you to pass the pension on to a child or spouse if you were to pass.

With financial security in retirement being a concern for many Americans, it can be difficult to pass on an employment opportunity that comes with a pension. Here are some things to consider when you are ready to take a new job that has a pension program.

Understand the Milestones
Most companies will have the pension agreement set out in term limits. Once you have been working at the company for a set number of years, you will get a certain percentage of your income. This percentage increases the longer that you work at the company.

This will help you plan your retirement better when you know how many years you must work to get the full potential of your pension. If you are fired from your job, this could prevent you from receiving any of your pension. Make sure that you know the terms of the employment, about your pension if you decide to leave, or if you are let go.

Avoid Money Management
You won’t be the one who is managing the money in the pension, so you don’t have to worry about trying to be a financier. Instead, your employer has a financial provider that does all the investment work, and you just monitor what is in the pension over time. You can work with a financial wealth manager to manage other funds if you want, in addition to the pension, and have a professional manage your money.

Don’t Stress Over the Market
People who have most of their money in a 401k plan will see the money in their account fluctuate with the market. This can be beneficial when the market is good, but when the market is bad, you can watch thousands of dollars or more disappear. You don’t have to worry about market fluctuations when you have a pension because you know the set amount that the employer has guaranteed to pay.

Another benefit of a pension as a retirement option is that the pension will be backed by the Pension Benefit Guaranty Corporation. This will cover the pension if the company goes bankrupt, allowing it to get a majority or all of the monetary benefits you were expecting.

There is a difference between private pensions and public pensions. If you are considering working as a government employee, city worker, educator, or something in the public sector where you live, then odds are you’re eligible for a private pension. The pension is funded by the department and city tax dollars.

Although the pension may currently be funded, long-term depreciation in an area, loss of population, and increased spending by the city or township can at times cause concerns for the pension down the road. Talk with the employer about the fear of this in the future, and if they foresee any issues down the road.

Private pensions aren’t as common, and there are laws put into place to make sure that all companies still offering pensions are adequately funding the pensions. Most companies that once offered pensions have cut this off, and the new staff aren’t able to participate. Instead, they have some type of 401k match program to help them build their retirement account.

As an independent employee, you can have some of your income added to your pension additionally each paycheck. This is something that you’ll want to do if you worry that you aren’t going to have enough for retirement when the time comes, and if it’s easiest to have it deducted from your pay before your paycheck hits your account. This is an easy way to save more money for the future.

If you worry about having a pension and not being able to take out social security, you’ll want to talk with a financial professional. Your past work history, the time you’ll be at the company where you are getting pension benefits, and the age you want to be when you retire will all affect this. If you aren’t going to qualify for social security, you’re going to have advantages when it comes to your taxes.

You won’t have to pay into social security, since you won’t be able to claim it down the road. Consult a tax professional if you have questions about past employment social security contributions and the future.

Choosing an employer today may not seem like it needs to be a lifelong decision, but it doesn’t matter what your age is, you should be thinking about retirement when you start applying for jobs. If you have the opportunity to work for an employer that has a pension, this can be one of the most secure ways to plan for your future.