Pensions are a thing of the past, right? Not exactly.
Sure, they aren’t as prominent as they used to be—according to a 2024 study by the Bureau of Labor Statistics, only 15% of private industry workers had access to a defined benefit (DB) pension plan—but traditional pensions are still available in certain sectors. Pensions can be complicated, though, so if they’re part of your retirement plan, it’s important to understand just how they operate.
What is a pension?
A pension has similar characteristics to other employer-sponsored retirement plans, depending on the type:
- Long-term growth opportunities
- Contributions made by you, your employer, or both
- Tax advantages
Types of pensions
There are two primary types of pensions:
- Defined benefit (DB) pension. A defined benefit pension guarantees a specific amount of money during retirement. The amount you receive is typically based on factors such as your salary, how long you’ve worked for the company, and a fixed formula that’s set by your employer.
- Defined contribution (DC) pension. A defined contribution pension doesn’t guarantee a specific payout at retirement. Instead, both the employee and employer contribute a fixed amount or percentage of the salary to an individual retirement account. Examples of defined contribution plans include 401(k) and 403(b) plans.
What jobs still have a traditional pension?
Despite many industries phasing out pensions, there are still occupations out there that offer a DB or DC plan. Here are a few examples:
- Finance professionals. In the Bureau of Labor & Statistics study of 2024, 31% of workers in the financial activities sector had the possibility of receiving a traditional pension, the highest level among all industries.
- Firefighters. Many communities invest significant time and money into training firefighters, and a pension benefit may encourage them to remain with a department for an extended period.
- Government employees. Government workers at the local, state, and federal levels are more likely to receive pensions than those employed by private companies. The main reason? Government agencies often opt for defined benefit pension plans over newer workplace benefits like defined contribution plans.
- Teachers. While teaching can be a challenging career and isn’t known for high pay, school systems use pensions as a way to attract workers and retain them year after year.
- Unionized employees. Two-thirds of private industry unionized workers had access to a defined benefit plan in 2023, the BLS reports. Unionized workers in the manufacturing, transportation, and construction industries are most likely to get access to a traditional pension as part of their negotiated benefits.
How much should you set aside?
A good rule of thumb is to save at least 10-20% of your income each year. Benchmarks to shoot for should also increase incrementally during your career—for example, have 3.5-1.5 times your annual salary saved up by age 35; 6-11 times your salary by 60; and 10-12 times your salary by retirement age. It’s also a good idea to set up additional savings vehicles to supplement your retirement income and ensure you have enough savings to live off when you retire.
If you have questions about pensions or are looking for general investment advice, contact an LPL Advisor* with SELCO Investment & Retirement Services. They’ll be happy to help.
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* Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. SELCO Community Credit Union and SELCO Investment & Retirement Services are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using SELCO Investment & Retirement Services, and may also be employees of SELCO Community Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, SELCO Community Credit Union and SELCO Investment & Retirement Services. Securities and insurance offered through LPL or its affiliates are:
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