If you work for an employer that offers both a 401(k) plan and a pension plan, you’re in a lucky minority. Participate in both plans to the max and look forward to a comfortable retiܫrement.

Only about 15% of employers in private industries offer defined-benefit pension plans, although 86% of state and government employers do, according to the U.S. Bureau of Labor Statistics.

Pension plans have been largely replaced by employer-sponsored retirement savings plans such as the 401(k) a♎nd its cousins like t🥂he 403(b). That’s because they’re cheaper for the employer to offer, and they have tax benefits for employers and employees.

In short, if you have access to both, congratulations. If you have a pension plan but no 401(k), consider investing in an 澳洲幸运5官方开奖结果体彩网:individual retirement ac⛄count (IRA) every year.

Traditional Pension Plans: A Blast From the Pas🐠t

In the parlance of human resources (HR) departments, a pension plan is known as a “澳洲幸运5官方开奖结果体彩网:fixed benefit plan,” as it guarantees the employee a set amount of monthly income for life after retirement, based on the individual’s salary and number of years worked. A 401(k) is a 澳洲幸运5官方开奖结果体彩网:defined-benefit pension plan that accumulates until the employee retires. At that point, it belongs to the employee and the company has no further role i🎶n funding or distributing it.

Since the late 1970s, when the government first OK’d the tax breaks associated with 401(k) plans, private companies have been moving away from the fixed benefit plan and offering a 401(k) as a substitute. Self-employed people and others who were not cover🐼ed by company benefits could open an IRA to get a similar long-term savings account with similar tax breaks.

How Pensions Work

Until the 1970s, most workers had defined-benefit pensions. They were designed to encourage employees to stay with one company for the long haul. The employee was rewarded for loyalty, and the company benefited from having a stable, experienced workforce.

As the name implies, these plans pr🌳ovide a fixed (“defined”) payment during retirement—for as long as you live. If you’d rather have a single payment, you can elect a lump-sum distribution. You can even choose a combination of the two options.

Either way, your benefits are based on metrics, such as your age, earnings history, and years of ser🅠vice. Your employer funds the pensi🐭on and takes on the investment risk.

The company also bears the 澳洲幸运5官方开奖结果体彩网:longevity risk. That’s the risk that many plan participants will live longer—and co﷽llect m💎ore money—than the company expected.

These days, defined benefit plans are still fairly common in the public sector (i.e., government jobs). But they’ve largely disappeared from the private workforce, where defined contrib💫ution plans now rule.

Defined Contribution Plans

During the 1970s, the government created several 澳洲幸运5官方开奖结果体彩网:defined contribution plans, including 401(k)s and IRAs. They are called defined plans because they are funded by employee contributions, combined with employer contributions if they choose to participate. The amount you receive at retirement depends on how much was contributed to the plan over the years and how well your investments performed.

While defined contribution plans were welcome creations, few realized at the time that they would eventually 澳洲幸运5官方开奖结果体彩网:replace🦄 the cherished traditional pensions that employees had grown accustomed to.

澳洲幸运5官方开奖结果体彩网:Defined contribution plans are cheaper for employer🔯s to maintain and fund. They also shift the burden of retirement planning—and the longevity risk—to the empl𒁃oyee.

For these reasons, ಞtraditional pensions are no longer parꦺt of the retirement equation for most workers at private companies.

Government Employees Still Get Pensions

Defined benefit plans are still available to most  at the federal, state, and municipal levels. While it may be comforting to assume your retirement needs will be fully met by a 澳洲幸运5官方开奖结果体彩网:government pension, that’s not a good idea.

Many state and municipal employee pension plans are facing substantial shortfalls to cover future obligations. That means your pension might not be as ironclad as you once thought. Even government employees should be making additional plans to save for retirement.

Will My Pension Be Enough?

If you have a traditional pension plan, contact your HR department to find out what amount 澳洲幸运5官方开奖结果体彩网:you can expect at retirement. This is usually based mostly on a percentage of your income plus the number of years you work for your employer. It also depends on whether you have worked long enough at the company to be vested in the pension plan. Leave before the magic date, and your pension rig🐭hts disappear♓.

To figure out if your pension will be enough to retire comfortably, add your expected pension payment to your expected monthly 澳洲幸运5官方开奖结果体彩网:Social Security benefit. If it’s not enough—or if it’s barely enough—take a look at the defined-contribution alternatives, such as a 401(k) 🍎or an IRA, to make up the shortfall.

It’s wise to consider the alternatives even if it looks like you’re set for retirement. You never know 澳洲幸运5官方开奖结果体彩网:what will happen to your pension. And in any case, the tax breaks of a 401(k) or IRA a🧜re worth the investment.

Watch Out for Inflation

Inflation is the X factor in retirement plann♛ing. Most private employer pension plans establish a fixed monthly benefit at the beginning of retirement and pay that amount for the rest of your life.

While that might be very generous in the early years of retirement, you’ll begin to feel the pinch in 10 years or so, when your monthly benefit🃏 doesn’t buy as much as it used to.

To address this, government pensions typically have some type of 澳洲幸运5官方开奖结果体彩网:cost-of-living adjustment (COLA). Still, that COLA might not address your specific needs.

COLAs are generally based on the 澳洲幸运5官方开奖结果体彩网:Consumer Price Index (CPI), a general-purpose survey of changes in the prices of essential goods. However, that can work against seniors. For example, healthcare is a major component of a retiree’s household bud🍒get. Price levels in that sector are rising much faster than in the general economy. If the CPI is 2%, but your personal 🐟rate of inflation is 5%, you’ll fall behind even with a COLA provision.

You Don’t Control Your Employer’s Pension Plan

A pension that looks good now can change—especially if it’s not🌱 part of a union contract or other mand♏ate.

Your employer has control over a defined-benefit plan (subject, of course, to federal law and contractual obligations). That means your company can change its benefit calculation, reduce benefits, or even terminate the plan.

If so, your employer may arrange a payout to workers for their portions of the plan to date. However, in some cases, the funds are left in a po🌟orly managed account that pays meager benefits until the last pensioned employee dies. Either way, you won’t get your expected monthly benefits.

There’s even a chance that your company’s pension plan could fail. There are some 澳洲幸运5官方开奖结果体彩网:protections in place to help preserve a portion of your pension plan—but not all of it.

The Bottom Line

The future of defined benefit pensions is tenuous at best. In addition to your pension, it’s a good idea to fund a defined contribution retirement plan—such as a 401(k) or 403(b)—if your employer offers one. An IRA is another good choice. You can even 澳洲幸运5官方开奖结果体彩网:max out your contributions to both a defined contribution plan and an IRA during the same year.

Other ways to prepare for retirement include building up non-retirement investment🗹s (stocks, mutual funds, investment real estate), working to get out of debt, and even investigating post-retirement career opportunities.

A traditional pens♎ion is great if you have one, but never assume that your employer has your retirement fully covered. Ultimately, the quality of your retirement is your responsibility.