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A pension is a retirement plan where an employer promises to pay an employee a set income stream after they retire, often for the rest of their life.
In Depth
With a pension, your employer contributes to a fund on your behalf, and when you retire, you receive regular payments for the rest of your life, or for a set period. The amount you receive often depends on your salary, years of service, and the plan's formula. Unlike a 401(k) where you manage investments, the employer bears the investment risk with a pension.
Example
After working for the city for 30 years, Sarah received a pension that provided her with a reliable monthly income throughout her retirement.