For many people, a pension plan is a large component of their long-term financial plan, and may be one of the keys to their retirement. As you begin to plan for your own financial future, understanding what a pension plan is, how it works, and whether or not it may be something you should think about more seriously are all important considerations. At Harvest Financial Planning, LLC, our team of experienced financial professionals can guide you through what you need to know about pension plans and strategizing for your economic future.
A pension plan is a type of retirement saving plan. However, unlike traditional retirement savings plans–where the individual is the sole party making contributions to the plan–a pension plan requires an employer to make contributions into a pool of funds that is invested on the employee’s behalf. When the worker retires, the earnings on the investments create a source of income for the employee. Some pension plans not only have a mandatory contribution requirement for employers, but also allow employees to voluntarily contribute to their own plans in order to fund their retirement.
An important thing to remember about pension plans is that they are dependent upon your employer, and are therefore not portable as are other savings plan types. Indeed, if you leave your current employer (who is managing a pension plan on your behalf), you cannot take your pension plan to your new employer. In fact, whether or not you’ll get any pension payouts if you leave your company before you retire is dependent on how long you held your job for prior to leaving it. This also depends on the type of vesting schedule your employer uses.
If you do have a pension plan in place and if you are nearing in on retirement age, you may be wondering when a good time to access your money is. It is important to note that you typically cannot access your pension money until you reach retirement age. However, some plans will allow you to start collecting retirement benefits early, although the earlier that you start collecting, the greater your monthly payment will be reduced to account for the additional time for which you’re drawing benefits. It is very important to speak with a financial professional before you start drawing from your pension.
One mistake that many people make is thinking that their pension will provide them with enough income during their retirement years to live comfortably without any other sources of income. This can be a costly error; pension plans often do not yield enough to act as the sole source of income during a person’s retirement. As such, our financial professionals at Harvest Financial Planning, LLC always suggest that a pension plan should be one of your tools when planning for retirement, but should not be your only tool.
If your employer offers a pension plan, you will have an extra source of income every month when you reach your retirement years. Either way, however, the more money that you set away starting now, the better off you will be in the future.
To learn more about planning for retirement and how pension plans work, please set up a meeting with us today. You can reach our experienced team by calling our Schererville offices directly at 219-864-5050.
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