A pension — also called a defined benefit plan — pays you a fixed monthly amount in retirement, typically based on your years of service and final salary. Unlike a 401(k), you don't manage the investments. The employer guarantees the payment for life.

This guaranteed income is powerful. It covers your baseline expenses — housing, utilities, food — without you having to draw from your portfolio. That means your retirement savings can stay invested longer, potentially growing well into your 70s and 80s.

But pensions come with decisions that can't be undone. The biggest one: the payout option you choose at retirement. Most pensions offer a single-life annuity (higher monthly payment, stops at your death) or a joint-and-survivor annuity (lower payment, but continues to your spouse after you die). The wrong choice can leave your spouse without income.

Some pension holders are also subject to the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO), which can significantly reduce Social Security benefits. If you have a government pension, this is critical to understand before you claim.

Pension income is also typically taxable as ordinary income, which affects your overall tax strategy in retirement — especially if you're drawing from IRAs or other tax-deferred accounts at the same time.

• ✓A pension reduces how much you need to save — it covers baseline income so your portfolio doesn't have to.
• ✓Your payout option (single-life vs. joint-and-survivor) is one of the most important decisions you'll make.
• ✓Government pension holders may see reduced Social Security benefits due to WEP or GPO rules.
• ✓Pension income is taxable — factor this into your overall retirement tax strategy.
• ✓Even with a pension, you still need a plan for healthcare costs, inflation, and estate transfer.

Single-Life Annuity: You receive the maximum monthly payment for the rest of your life. When you die, payments stop — your spouse receives nothing from the pension. Best if your spouse has strong independent income or you have no spouse.

Joint-and-Survivor Annuity: You receive a reduced monthly payment, but after your death your spouse continues receiving a percentage (usually 50–100%) for the rest of their life. This protects your spouse but costs you income today.

Lump-Sum Option: Some pensions offer a one-time lump-sum payment instead of monthly income. This gives you control and flexibility but puts all investment and longevity risk on you. It requires careful planning to make it last.

There's no universally "right" option — it depends on your spouse's income, your health, your other assets, and your tax situation. This is exactly the kind of decision that benefits from a professional review before you sign anything.

• ✗Choosing the single-life payout without understanding what happens to your spouse when you die.
• ✗Not accounting for WEP or GPO if you have a government pension — your Social Security benefit may be much lower than expected.
• ✗Assuming the pension is "enough" and skipping additional retirement savings — inflation erodes fixed income over time.
• ✗Taking the lump sum without a clear investment and distribution plan — it can run out faster than monthly payments would have lasted.
• ✗Failing to update your estate plan after retirement — pension income affects beneficiary designations and overall asset distribution.

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