If you're retiring with a pension you have a unique set of decisions to make, including when to take your benefits, how they'll affect your spouse, and how to plan for taxes. You'll also want to know the difference between a federal or government pension and private pensions and annuities, and how the rules change for each.

Frequently Asked Questions
  • How do pensions work?

    The most common type of pension plan is a defined benefit plan. Under that type, after an employee with a pension retires, they receive monthly benefits from the plan that grew through contributions from the employer and sometimes the employee. The amount they receive is based on a formula that weighs how many years they worked for that company and provides a percentage of their average salary during the last few years of their employment.

  • Are pensions taxable?

    All or some of the benefits a person receives from a pension or annuity payment from a qualified employer retirement plan may be taxable unless the funds are part of a qualified distribution from a Roth account. Benefits are fully taxable if you did not make any after-tax contributions, your employer didn't withhold after-tax contributions, or you received your after-tax contributions tax-free previously.

  • Do pensions last for life?

    Regular pension payments continue for the rest of your life, no matter how long you live, and sometimes can continue being paid to your spouse after your death. If an employer goes bankrupt, pension payments could stop but the Pension Benefit Guaranty Corporation (PBGC) insurance covers defined-benefit plans. The PBGC does not safeguard defined-contribution plans such as 401(k)s.

  • Can my ex-spouse claim my pension after divorce?

    It depends on state law and the details governing your specific pension plan. But a pension earned by one spouse is generally considered a joint asset, meaning it's subject to division in divorce. Review your state's laws to determine the best way to protect your pension in a divorce. To determine how much a former spouse may be entitled to, you can often divide the pension benefits earned during the course of the marriage in half.

  • Can a child claim a deceased parent's pension?

    Pension death benefits for children vary depending on the type of pension a parent had. Typically, plans only allow for the employee or a surviving spouse to receive benefit payments. But there are limited instances for child beneficiaries. For instance, if a married employee chooses a joint-life payout, the default beneficiary is the member's spouse unless the spouse waives that option in writing. If so, the member can designate a different beneficiary such as a child.

Key Terms

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