Pension Alternatives – What Are Your Options for a Secure Retirement?

pension alternatives

Are you looking for alternatives to a pension plan for guaranteed income in retirement? Perhaps you have a pension plan and worry about its future ability to make good on promised payments.

Pensions are becoming increasingly rare in corporate America today. Many private-sector employers have replaced pension plans with 401(k) or other profit-sharing plans to cut costs.

But if you are lucky enough to be privy to a pension plan, it’s important for you to know how it works, what you will get from it, and effective pension alternatives. And if you won’t be getting a pension, going over your alternative options can help you make well-informed decisions about retirement.

Let’s get into a deeper dive on pension plans, alternatives that are available and will pay you guaranteed income for life, and how these options look in the full spectrum of retirement planning.

What is a Pension Plan?

In a nutshell, a pension plan is a guaranteed stream of income that you will receive when you retire. It’s funded by your previous employer and paid out to you in periodic installments after you retire.

The income from a pension plan typically lasts until the death of the retiree. Pension plans are advantageous for employees because they don’t bear the investment risk, and they can’t outlive the income that they receive.

What Are Your Pension Options When You Retire?

Many pension plan recipients have more than one option to choose from when they retire. They may elect to receive a straight life payout, which will end upon their death. Or they may choose a joint life payout, where the pension will last as long as either the retiree or their spouse lives.

They may also be accorded a period certain option, where they are guaranteed to receive an income stream for a certain period, regardless of how short they might live. But the more guarantees the retiree chooses, the lower the pension payments will be.

What Happens to Your Pension When You Die?

If you go with the straight life payout, then your pension will stop upon your death. This can be a problem for married couples because the surviving spouse will receive no further income after the retiree passes away.

Therefore, many retirees opt to choose the joint life payout option. If you elected to receive a minimum guaranteed amount of money after you retire, then the remaining amount of this sum that hasn’t been paid to you will go to your beneficiary after your death.

But if you opt for a straight life payout and then die unexpectedly after just a few payments, then no more money will be paid out to anyone else.

What Are Alternatives to a Pension Plan?

Defined-contribution plans have replaced pension plans in much of corporate America. These plans allow employees to save money on either a pre- or post-tax basis (either traditional or Roth) and draw the money out at retirement.

But this type of retirement plan carries more risk for employees because they are usually risking their money in the markets.

Alternatives to Pensions for Workers

So, what are some pension alternatives that can provide dependable cash-flow in retirement? Employees who want a guaranteed stream of income that they can’t outlive in retirement can put some retirement savings in an annuity.

Annuities are designed to pay them income for life. Some types of annuity payouts are irrevocable, while others can be started and stopped depending on the needs of the retiree.

Annuities can essentially provide a form of private pension because they are designed for individuals, not as an overarching corporate savings plan. They are also customizable to someone’s personal situation with their many versatile product designs, features, and benefits.

Pension Alternatives for High Income Earners

Corporate executives, and other high income earners, who are already contributing the maximum-allowable amount to their defined-contribution plans can sock extra money away in an annuity to boost their retirement savings over time.

Annuities have the unique advantage of growing tax-deferred, regardless of how much money is placed in them. Someone could put $100,000 upfront into an annuity and have it all grown tax-deferred until they draw it out in retirement.

Many annuities will also the contract owner to put more money into the contract on a periodic basis. There is no IRS limit on the amount of money that can be put into an annuity each year.

However, those contributions aren’t deductible unless they are purchased with qualified money in a retirement plan or IRA.

Pension Alternatives if You Are Self-Employed

Self-employed persons have the same options available to them as high-income corporate executives when it comes to saving for retirement. Self-employed taxpayers have much higher contribution limits for their retirement plans, and they may also put this money into an annuity, if they so choose.

The current savings limit for most self-employed workers is around $60,000 per year, about twice the amount that an employee can put into an employer-sponsored retirement plan.

If you can contribute the maximum-possible amount to your retirement plan each year, you will amass a sizeable amount of money by the time you retire.

Pension Alternatives Pros and Cons

If you have participated in a 401(k), 403(b), or 457 plan during your working years, then you may have invested some money in various types of mutual funds. You may have also put some of your money into an annuity or shares of your company’s stock.

Are you still interested in pension alternatives that can pay you a guaranteed lifetime income stream? You can put some of that money over into an annuity after you retire, and then you can get a guaranteed stream of income for life.

Many annuities now offer guaranteed income riders that can be turned on and off as your needs change. So, if you put some funds into an annuity that has one of these riders, then you could just turn off the income stream and withdraw however much money you want from the contract and then turn the rider back on.

You will still get a guaranteed stream of lifetime income, albeit with a lower payment because of the reduced amount of principal that the payments are based upon.

With other annuities, you can also turn your money into a guaranteed income stream by “annuitizing” the contract. But the vast majority of annuity owners don’t do this, as they lose access to their money with annuitization. Many use income riders for the flexibility instead.

The Bottom Line on Pensions and Alternative Options for Income

If you want a guaranteed stream of lifetime income when you retire and won’t have any type of corporate pension, then an annuity can provide you with the guaranteed income that you are looking for.

On the other hand, should you be looking for pension alternatives that can supplement your income, annuities can be a great solution along with other fixed-interest assets. Consult your financial advisor for more information about annuities, their pension-like income, and how they work.

If you are looking for a financial professional to walk through these important questions, no sweat. Many independent and experienced financial professionals are available at to assist you. Get started by visiting our “Find a Financial Professional” section to connect with someone directly. You can request an initial appointment to discuss your situation. Should you need a personal referral, please call us at 877.476.9723.

Next Steps to Consider

  • Start a Conversation About Your Retirement What-Ifs

    retirement planning services next steps

    Start a Conversation About Your Retirement What-Ifs

    Already working with someone or thinking about getting help? Ask us about what is on your mind. Learn More

  • What Independent Guidance
    Does for You

    independent vs captive advice

    What Independent Guidance
    Does for You

    See how the crucial differences between independent and captive financial professionals add up. Learn More

  • Stories from Others
    Just Like You

    safe money working with us

    Stories from Others
    Just Like You

    Hear from others who had financial challenges, were looking for answers, and how we helped them find solutions. Learn More

Proud Member