Pension: What Does It Mean?

A pension is a retirement plan where your employer promises to pay you a specific amount of money regularly after you retire, typically for the rest of your life. Unlike 401(k)s, where you bear the investment risk, your employer funds and manages the pension, guaranteeing your monthly benefit.

Your pension amount usually depends on factors like your salary, years of service, and age at retirement. For example, you might receive 1.5% of your average salary for each year worked. Pensions were once common but are now primarily found in government jobs, unions, and some large corporations. They provide predictable retirement income—you know exactly what you'll receive each month—which makes planning easier. Some pensions offer survivor benefits for your spouse and may allow you to choose between a higher monthly payment for life or a lower payment that continues to a beneficiary after you die. If you're fortunate enough to have a pension, it can form a stable foundation for your retirement income alongside Social Security and personal savings.