What is a pension and how does it work?

A pension is a retirement plan where an employer promises a specific, regular payment to an employee after retirement. It typically works by calculating benefits based on years of service, salary history, and a formula multiplier, with the employer funding and managing the investments.

Are pensions still common in 2026?

In 2026, pensions (defined benefit plans) are less common in the private sector, with only about 15% of private workers having access. However, they remain prevalent for state and local government employees, with over 80% still covered by such plans.

How do I find out if I have a pension?

You can find out if you have a pension by checking your employment contract, contacting your HR department, or reviewing your annual benefits statements. If you've worked for a government entity or a unionized company, it's highly likely you have one.

What is the average pension payout?

The average pension payout varies widely based on years of service, salary, and the specific plan formula. For example, a federal employee under FERS with 30 years of service and an average high-3 salary of $70,000 might receive around $21,000 annually, but this is highly individualized.

Can I take my pension as a lump sum?

Many pension plans offer the option to take your vested benefits as a lump sum payment instead of monthly annuity payments. However, taking a lump sum means you assume all investment risk and responsibility for making the money last throughout your retirement.

What is the difference between a pension and a 401(k)?

A pension (defined benefit plan) guarantees a specific monthly payment in retirement, with the employer bearing the investment risk. A 401(k) (defined contribution plan) is an individual investment account where the retirement income depends on contributions and investment performance, with the employee bearing the investment risk.

Is my pension protected if my company goes bankrupt?

Yes, private sector pensions are generally protected by the Pension Benefit Guaranty Corporation (PBGC), a federal agency that insures defined benefit plans. If a covered plan fails, the PBGC pays a portion of the promised benefits, up to certain legal limits, which are adjusted annually.

Pension: Your Complete Retirement Guide | One Percent…