Are Pensions Worth the Wait? The Golden Handcuffs Debate

The Value of a Pension

Pensions provide guaranteed income in retirement, which helps reduce the amount you need to withdraw from your personal investment accounts. For many retirees, this predictable income stream can strengthen the long-term sustainability of their retirement plan, especially when paired with other income sources, like Social Security.

While pensions can be powerful tools, they typically don’t grow with inflation, and may not be enough on their own depending on your lifestyle and spending needs. Additional savings in 401(k)s, IRAs, and other investments are often essential.

Public vs. Private Sector Pensions

Some careers, such as teachers, firefighters, and government employees, still offer traditional pension plans. However, pensions are becoming increasingly rare in the private sector. Those with access to pensions often weigh staying in a less satisfying job to keep benefits against the potential of earning more and saving independently in a different role.

The Case for Creating Your Own Pension

High-income earners in the private sector may be better off building their own retirement through investment accounts. Over time, disciplined investing in the stock market can generate more retirement wealth than a pension, especially when started early. Additionally, military personnel and some public sector workers can stack pensions across multiple roles, potentially retiring with several income streams plus Social Security.

Golden Handcuffs: Are They Worth It?

Some employees feel trapped by pensions or other deferred benefits, commonly referred to as “golden handcuffs.” These include restricted stock units, deferred compensation, or pension vesting schedules. While these benefits can grow significantly over time, they may come at the cost of personal fulfillment or professional growth. If you’re unhappy in your role, it’s important to consider whether the long-term benefit outweighs the impact on your overall well-being.

Choosing Between a Lump Sum vs a Monthly Pension

When the time comes to claim a pension, you may be faced with options like:

• Monthly annuity payments
• Lump sum distributions
• Survivor benefits (e.g., 50% or 75% to a spouse)

Each has pros and cons. A lump sum gives you more control and the option to invest, potentially leaving assets to heirs. However, monthly payments provide predictable income. The right choice depends on your life expectancy, financial plan, and risk tolerance.

What to Consider Before Staying or Leaving

Before making career decisions based on a pension:

• Assess your full financial plan with a qualified advisor
• Know your pension’s vesting schedule and benefit details
• Compare potential earnings and savings in a new role
• Factor in job satisfaction, career growth, and personal well-being
• Account for taxes, inflation, and longevity

How Does a Pension Fit Into Your Retirement Plan?

Pensions can be an important part of retirement planning, but they shouldn’t be the only factor in your decision-making. The real power lies in aligning your income streams, whether from pensions, savings, or investments, with a plan that supports your life goals. A fiduciary financial advisor can help model different scenarios and provide clarity around your options.

Schedule a consultation with one of our financial advisors to review your full financial picture and evaluate your pension options with confidence.