Retirement planning is crucial to your long-term financial strategy and must never be ignored. Aside from your life savings, it really helps to have a second fund in your retirement days that lets you spend them comfortably or helps bolster some big purchases. There is a host of options available to you and you must look into them in some detail before making a decision.
What Does a Corporate Pension Plan Entail?
Corporate pension plans are designed to provide a steady income in your retirement days, based on your salary history and service record with the enterprise. According to Investopedia.com, pension plans are still very popular among government workers but increasingly rare in private spheres. The Bureau of Labor Statistics reveals that as of 2019, around 83% of government workers have participated in workplace retirement programs. 77% of them had a pension plan outright, and another 17% had another savings plan for retirement in place. The large conglomerates in the private sector still offer attractive retirement benefits and pension plans to their employees, but the practice of offering a pension is declining rapidly in this sphere.
The Several Advantages of Pension Plans
Long-Term Investments: Pension plans operate over a long time, which makes it highly likely that you will have a sizable corpus in your fund by the time you retire. You can then convert it to an annuity, which would be a steady income post-retirement.
Multiple Funding Options: Most pension schemes provide flexibility in terms of how they can be funded. As an investor, you can put in a lump sum and begin receiving annuity immediately, or build a corpus over time and pick a deferred annuity plan, allowing the fund to earn interest before payouts begin.
Can Provide Additional Benefits: Some pension plans even have a bundled life insurance scheme, which involves a lump sum payout to your family member or nominee in the event of your untimely demise.
Some Issues with Pension Plans
Zero Option to Diversify Investments: With a pension fund in the US, you do not have any say regarding how the money is invested. The fund is managed solely by your employer, and the amount you finally receive is at their mercy. Alternative retirement plans like a 401(k) or an IRA typically has broad scopes, and the investor is allowed to pick an asset class that the money in the fund would be invested in. You can choose pure equity, pure debt, or a mixture of both based on your priorities and instincts.
No Easy Cash Flow in an Emergency: The standard option is to receive pension payouts as an annuity, and you are typically not allowed to adjust the policy to get access to a large amount as a lump payment in case of an emergency. Unlike a 401(k), you are not allowed to make an early withdrawal from your pension fund or draw a line of credit directly against said fund. The only option would be to take debt and then use the pension money to pay it off. You are not allowed to receive any payments before you hit the age of 65, although some funds will let you receive payments from 55 onwards, but with an obviously reduced monthly payout.
Even though the promise of retirement income or pension tends to give all retirees confidence and a sense of security, there seem to be certain drawbacks that you must be careful about. It is best to seek assistance from financial consultants for pension-related decisions. They could help you in weighing the merits and demerits for your precise circumstances. Also, you can apply Gary Saitowitz Grant to gain finical relief.