The Pension Dilemma

19 Aug 2014

According to the Bureau of Labor Statistics, less than a third (31%) of employees were offered a traditional pension at work in 2010. Even though that is a very small number, it is very important that you know what you have and how it works. For those of you who have a traditional pension (defined benefit plan) it may be one of the biggest financial decisions you ever make.

Pensions typically involve a three part formula; age, salary, and years of service. This formula will be your “Defined Benefit”. So, you are forced to pay into the plan (most pensions are not optional) and at retirement you are forced to select an option. Most people go into this woefully unprepared. The issues at hand are:

  1. Your decision is typically irrevocable.
  2. You could potentially disinherit your children.
  3. You must die in the right order.
  4. Most pensions have no cost of living adjustment – this can be a big problem as you grow older.
  5. Many pensions are underfunded. The Illinois State Pension is estimated to be underfunded by $250 billion (Jeff Brown Economist).
  6. To protect your spouse you must take a reduction of your paycheck. In other words, you are paying a premium to buy back you own money.
  7. Many pensions now offer lump sum options.

As you can see, there are many factors that you should be aware of when it comes to your pension. I see far too many people take this decision too lightly. As you plan for your retirement consider talking to a financial professional, it may be one of the biggest financial decisions you ever make.

Good Luck!

Jeffrey A. Johnston, ChFC
Investment Advisor Representative

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Premier Investments of Iowa, Inc. are not affiliated.


Jeffrey Johnston

Jeffrey is originally from Solon, Iowa. He currently resides in Swisher, Iowa with his wife, Prudence, and his three children, Seth, Ian, and Roman. He graduated from the University of Northern Iowa in 1989, where he majored in Finance and Investments. He has 24 years of experience in the investment and estate planning business. He is currently the President of “Premier Investments of Iowa, Inc.” Jeffrey’s main focus is Estate and Investment Planning for Senior Citizens and Pre Retirees. Jeffrey became a Chartered Financial Consultant (ChFC) in 2001. He is the author of many articles on industry related topics and he is a frequent seminar presenter. He is a Board Member TRIAD Linn County Seniors Against Crime, and he is also a past Board Member of the Heritage Area Agency on Aging Task Force. He is a member of CEO Roundtable in Cedar Rapids, a Daybreak Rotary Member, and a member of the Cedar Rapids Estate Planning Council. In March of 2009, Jeffrey became the host of the Premier Investments of Iowa Financial Hour which airs every Tuesday Evening from 6PM -7PM, on WMT 600 AM Radio. In his free time he enjoys golf, fishing, scuba diving, traveling, and coaching son’s basketball teams.