The Pros and Cons of Pensions
Even it takes a while before a person gets a pension, it will never hurt to know how it works. A pension plant is not like not like other retirement schemes that one may think it is. The company or the employers run the plan investments and handle the payout when an employee finally retires. Because of this, an employee does not need to stress on planning after retirement. Although, this also can be frustrating since it does not have flexibility like other retirement plans have. Check out the pros and cons of pensions that can help you decide if its good for you or not.
- No Risks
A pension plan does not investment risk. Its huge advantage is that it provides complete protection from investment risks. As mentioned, the employer plans the strategy for pension investment. If the stock market depreciates, the employer is responsible for making up the lost money. In fact, your pension plan stays safe even if your employer goes bankrupt. There are also government agencies that will take over your payments for your pension.
- Lifetime Payment
A pension plan is payments for life. After retiring, a pension plan provides you with payments for life. This means that you will still be paid by your company when you reach retirement. Although the amount of pension you will get depends on the amount of your salary when you’re still working, this even secures you after retirement. It’s not the full amount of your salary though if that’s what you’re expecting. For married employees, the pension can be based on their spouse’s life, too. This means that if you depart fist, your wife will get the pension. However, sharing this pension plant will provide you will get a smaller payment than the regular pension.
- No Control
Evidently, the benefits of pension will make you invest in it. However, it does not come with disadvantages though. Pensions have no investment control. Unlike 401k that grows with the stock market, your pension payment will be the same. When the stock market soars, only the employer can benefit from the profit. Also, you don’t have the option for moving it a your own investment. In fact, pensions can freeze out an employee out of Individual Retirement Account. Note that the ITS does not want too many employers getting tax breaks.
- Cannot Be Access Until Retirement
There is no early access with pensions, so if you run out of funds during a financial crisis, you cannot rely on your pension money. It can access after your retired. If you need emergency funds, you can take loans or early withdrawal from others plans like 401k. The thins about pensions is that your funds stay with your employer until you retire. If you wish to get this money early, you will have to quit your job and ask for a lump sum payment. However, getting your money back in lump sum is your employer’s decision not yours. If you wait until you retire, then you will still be paid every month by your company.