Q:

How do pensions work?

A:

Quick Answer

A pension is a fixed sum of money paid regularly to a retiree. A pension plan is funded by the employee, employer or both. For plans that require employee contributions, money is invested and then used to purchase an annuity, which provides a set income.

Continue Reading

Full Answer

The number of companies offering a pension plan to new employees declined from 60 percent of Fortune 500 companies in 1998 to just 24 percent by the end of 2013. As of 2013, only 7 percent of Fortune 500 companies offered traditional pension plans.

Traditional pension plans typically use a formula to determine the amount of money the retiree receives. This formula is a percentage multiplied by the number of years of service and factoring in the employee's ending salary. The formula varies, but as of 2014, Exxon Mobile offers 1.6 percent times the pension service years times the average last pensionable pay less Social Security deductions. Lockheed Martin, United Parcel Service, Johnson and Johnson, 3M, Bank of America, Wachovia, Coca Cola, Accenture, and Liden Nestle Soled & Associates are companies that still offer a defined benefit, or pension plan, as of 2013. In Nestle's plan, if the employer contributes $200 per month for 30 years, the employee receives $6,000 per month for the rest of his life.

Learn more about Financial Planning

Related Questions

  • Q:

    Are federal taxes typically levied on pensions?

    A:

    Pensions solely provided by a retiree's former employer count as taxable income, according to TaxHelp.org. However, if a retiree paid for part of the pension during his working years, he can exclude that part of each pension payment from his taxes due to recovery of cost.

    Full Answer >
    Filed Under:
  • Q:

    At what age can you receive full Social Security benefits?

    A:

    Retirees filing for Social Security receive 100 percent of benefits at the age of 66, and the spouse of the retiree receives 50 percent of benefits. Retirees can file for benefits at the age of 62, but the payment amount is reduced, depending on the exact age of the claimant.

    Full Answer >
    Filed Under:
  • Q:

    What is a lifetime annuity calculator?

    A:

    A lifetime annuity calculator is a tool that estimates investment earnings and inflation to calculate the approximate amount of regular income a retiree can plan to receive from his investments, according to the U.S. Department of Labor. It helps workers assess their readiness for retirement as well as providing an opportunity to adjust their plans if necessary. The actual amount of income from an annuity may differ from the estimate as a result of unforeseen factors.

    Full Answer >
    Filed Under:
  • Q:

    What is the required minimum IRA distribution for retirement?

    A:

    While minimum distributions from an IRA during retirement are required beginning at age 70.5, the amount of these required distributions depends on the value of the IRA and the life expectancy of the retiree, according to the Internal Revenue Service. However, Roth IRAs do not have required minimum distributions.

    Full Answer >
    Filed Under:

Explore