Pension benefits are often a substantial part of an individual’s long-term financial plans and may be one of the main paths to their retirement. When it comes to planning for your financial future, learning what pension plans are, how they function, and whether you should seriously consider one are all critical.
Pension plans are a form of a retirement savings plan. Unlike a conventional retirement savings plan where the individual is the only person making contributions, a pension plan calls for an employer to contribute to a collection of funds invested on the workerâ€™s behalf. When an individual retires, the returns on their investment form a source of earnings for that person. Besides having a required contribution provision for employers, some pension plans also allow individuals to contribute to their retirement freely.
An important aspect to note about pension plans is that they rely on your employer and are therefore not portable, like other savings plans. If you leave your present employer, you canâ€™t carry your pension plan to another job. The amount of time that you spend at your place of employment will determine whether or not you’ll receive your pension payout if you leave before reaching retirement. Receiving payouts may also depend on the kind of vesting schedule that your employer utilizes.
As you are approaching the age of retirement, you may wonder when you should access funds from your pension plan. It is crucial to keep in mind that you generally are not allowed to obtain your funds until you reach retirement age. Some pension plans allow you to begin accumulating your retirement benefits early. Still, the earlier you start, the more your retirement benefits will be decreased to account for the extra time you are drawing on your pension. It is vital for your financial well-being to connect with a financial professional before you start drawing money from your pension plan so that you can review the benefits and potential costs of this decision.
One common misconception about having a pension plan is that pensions will supply sufficient income during your retirement years to allow you to live comfortably without any other source of earnings. Pension plans alone are often insufficient to supply income during retirement. Our financial advisors at Prosper Financial continually recommend that while a pension plan, if available to you, should be an important tool in preparing for retirement, we also advise that it should not necessarily be the only tool you rely upon.
If your employer provides you with a pension plan, it could be an additional monthly payment source for you once you reach retirement age. In any case, the more funds you set aside early on, the more likely you are to enjoy a comfortable lifestyle during your retirement.
For more information on preparing for retirement and how your pension plan plays into that, please schedule a meeting with us today. You can reach our team by calling our office or completing an online contact form.