How to Retire Successfully Relying on a Pension

HUNTSVILLE, Alabama ((WAFF) – Many retirees find the financial security of a pension comforting, but it also comes with some limitations and risks.

On Your Money, brought to you by The Welch Group, this week we spoke with Senior Advisor Marshall Clay about the benefits and challenges of pension-based retirement, offering an in-depth look at what to consider when relying on a pension for retirement. pension.

The benefits of retiring with a pension

“One of the main benefits of a pension is the stability it provides,” Clay says.

Guaranteed lifetime income. Pensions provide a stable income that retirees can count on, often making retirement budgeting more manageable and predictable.
Death benefit for family members. Many pension plans offer a death benefit, ensuring that some income or benefit will pass to family members if the retiree dies. This security can be invaluable, especially for those who want to have a strong financial foundation in their retirement years.

Disadvantages of retiring with a pension

“However, pensions have disadvantages that can impact financial planning,” Clay says.

Limited access until retirement. Pension funds are generally not available until a person reaches retirement age, limiting flexibility for those who may need early access to their savings.
No adjustment for inflation. Most pensions are not adjusted for inflation, which can reduce purchasing power over time. However, military pensions are an exception and usually include a cost of living adjustment.
Risk of company failure: If the company managing the pension fund experiences financial instability or bankruptcy, pension security may be affected.
Lack of control over investments. Pensioners have no control over how their pension funds are invested, meaning they must rely on the choices of fund managers without knowledge of risk levels or investment strategy.

Key considerations for retirees

To get the most out of your retirement benefits, it’s important to keep a few things in mind:

Consult a financial advisor: Advisors can help retirees navigate retirement options, including potential lump sum payments or different retirement benefit structures that may better suit individual needs.
Invest in the fight against inflation. Because many pensions are not adjusted for inflation, supplementing retirement savings with investments in stocks, real estate or other assets can help maintain purchasing power.
Consider tax implications and health care costs. Pensions are generally not taxed at the state level, but they can affect overall income levels, potentially affecting Medicare premiums or other costs.

Balancing pensions with other pension income

While pensions provide a strong income base, it is important to understand how they interact with other sources of income. By combining pensions with additional investments or Social Security benefits, retirees can create a more comprehensive and adaptable financial plan for the future.

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