How Do I Choose a Pension Plan for My Retirement?

How Do I Choose a Pension Plan for My Retirement?


Taking steps to begin planning for your retirement and making decisions for your future can feel intimidating. Figuring out the best way to save money for when you eventually leave the workforce can present you with a wealth of crucial choices you need to settle on before you can begin preparations. For careers offering pension plans, you have to sift through multiple options to find the right one for your goals. 

Finding a financial advisor specializing in pension planning in Tacoma, WA, can help you navigate the intricacies of saving for your retirement. They will help you determine which pension plan fits your needs, overall goals, and timeline the best. 

How Do Pensions Plans Differ From 401Ks?

Regarding employer-sponsored plans, 401Ks and pensions are the two most popular options available in the workplace. Your company may offer a single option or a choice between the two, so knowing how they differentiate from each other will help you make a more informed decision. 

Defined Benefit Vs. Defined Contribution Plans

The biggest difference between the two options is how money goes into your plan. 401Ks fall under the defined contribution plan category. These plans allow a combination of you and your employer to make monthly contributions to your account. 

You can invest those contributions how you see fit and see the balance grow as time progresses. Some employer contributions match what you put in and act as free money. 

On the other hand, defined benefit plans take a different approach to how you receive your retirement money. Your employer has a dedicated pension fund that sets aside the money for employees when they retire. Every retired employee is guaranteed a specific retirement benefit that gets doled out as a lump sum or monthly payments once they leave the workforce. 

Who Takes on the Risk?

When deciding between a pension or a 401K, one key difference revolves around who assumes the bulk of the financial risk. With a pension fund, all financial risks fall upon your employer instead of your shoulders with a 401K plan. 

While the risk of your employer running your pension fund into the ground is a possibility, most businesses take the step of insuring the plan against such an outcome to help protect the future of their employees. 

How to Pick the Best Pension Plan for Your Future

While you don’t have as much control over how a pension invests your money, you can still identify specific benefits that help your financial future. As you pour over the available options, keeping an eye out for these benefits can help make your decision easier. 

Inflation-Adjusted Returns

While a pension does not have the breadth of investment choices available like in a traditional 401K plan, a pension plan offering inflation-adjusted returns can help offset that. This feature means that some measure of inflation will be factored into your monthly payments after you retire. The goal is that its value rises right alongside the prices of your essential goods and commodities. 

Guaranteed Pensions for You and Your Spouse

Growing old with the person you love is something you can look forward to in retirement — with your pension laying the groundwork for your happy life together. However, if you pass before your spouse and the pension is not guaranteed in the event of your death, they could face dire financial straits. 

In the event of your untimely passing, you want to ensure your spouse is taken care of financially. A pension plan that offers a guaranteed pension for your spouse will help give you peace of mind knowing that even though you’re gone, the pension will still be there to help your loved ones in their time of need. 

Finding a Flexible Plan

It may appear at first glance that most pension plans don’t offer much flexibility regarding the investment decisions you can make. However, some plans offer a greater degree of leeway in terms of paying a higher premium to add to the pension fund. The ability to make adjustments to this rate at regular intervals will help increase the general fund and your stake in it. This requires a cost/benefit analysis to determine the best path forward.

Guaranteed Income for Life

No matter how well you plan for your retirement, there is always a possibility that you may eventually run out of money and be faced with hard decisions. However, some pension plans come with the option to plan for a continuous guaranteed income well into your golden years. This can make a pension plan a nice benefit alongside a traditional investment portfolio.

Let Stolz & Associates, P.S. Help Pick the Right Pension for You!

Deciding what to do with your pension plan to provide stable ground for your financial future post-retirement remains one of the most vital decisions you can make. With so many different types of retirement plans available, knowing how to sift through which ones make the most sense for your goals can have far-reaching implications. 

Stolz & Associates, P.S. have a wealth of experience helping our clients find the right pension plans for their retirement. We help you define your future goals and determine which pension plan serves you best. Contact us to learn more about our pension planning and wealth management services today!