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While pensions have become less common in the private sector, there are still jobs that provide this valuable benefit. Government, public-sector and unionized employers are all likely to offer pensions to their employees. It can be worthwhile to consider whether working in one of those fields could be a viable way to provide for a secure retirement. Pensions offer a guaranteed, life-long source of income in retirement, ensuring financial security for employees who dedicate many years of service to their employers. If pension-eligible employment isn’t an option, saving for retirement with voluntary contributions to tax-advantaged retirement accounts is the primary alternative.
If you want to build a retirement plan, a financial advisor could help you set goals, develop strategies, analyze investments and manage risk.
Understanding Pensions
A pension is a retirement plan offered by employers, which typically provides employees with guaranteed monthly payments when they reach a certain age and stop working. Pensions are funded by the employer and sometimes include employee contributions.
They are considered defined benefit plans, meaning that the benefit amount is determined by a set formula, usually based on the employee’s salary and years of service. This differs from defined contribution plans, such as 401(k)s, where the amount of the payout is determined by the amount of the contributions and investment performance.
With a pension, employees typically are promised monthly payments for the rest of their lives, making it one of the most secure retirement options available. There are several benefits to having a pension to rely on in retirement, such as:
- Guaranteed income: Pensions provide a fixed and reliable income that is not affected by market fluctuations.
- Employer-funded: Employers make all or most contributions to pension plans, reducing the financial burden on employees to save for retirement.
- Longevity security: Pensions pay out for the rest of your life, ensuring that you won’t outlive your retirement savings.
- Spousal benefits: Many pension plans offer spousal survivor benefits, which provide income to your spouse in the event of your death.
Pension income can provide an important foundation for retirement, but it’s often only one part of a broader financial plan. Use SmartAsset’s retirement calculator to estimate how your pension, savings and Social Security benefits may work together over time.
Retirement Calculator
Calculate whether or not you’re on track to meet your retirement savings goals.
About This Calculator
To estimate how much you may need to save for retirement, we begin by calculating how much you're expected to spend over the course of your retirement. This includes estimating the income you'll need based on your lifestyle preferences, then factoring in how many years you may spend in retirement. We assume a lifespan of 95 by default, though you can adjust it after your calculation is complete.
Once we have a clearer view of your total retirement needs, we use our models to evaluate your existing and future resources. This includes estimating retirement income from Social Security and the impact of current retirement plans, pensions and other accounts. For additional inputs and a comprehensive retirement plan, please see our full Retirement Calculator.
Assumptions
Lifespan: We assume you will live to 95. We stop the analysis there, regardless of your spouse's age.
Retirement accounts: We automatically distribute your future savings optimally among different retirement accounts. We assume that the IRS contribution limits for your retirement accounts increase with inflation.
Social Security: We estimate your Social Security income using your stated annual income and assuming you have worked and paid Social Security taxes for 35 years prior to retirement. Our estimate is sensitive to penalties for early retirement and credits for delaying claiming Social Security benefits.
Return on savings: We assume the percentage return on your savings differs by whether you're pre- or post-retirement and by account type, with a distinction between investment accounts and savings accounts. This assumption does not account for market volatility or investment losses and assumes positive growth over time. All investing involves risk, including the possible loss of principal.
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This is not an offer to buy or sell any security or interest. All investing involves risk, including loss of principal. Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). Past performance is not a guarantee of future results. There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest.
Pensions in Decline
Pensions offer an advantageous way for individuals to prepare for a financially comfortable retirement with their employers’ help. Pensions provide life-time payments, while defined contribution plans only pay out as long as the accounts contain funds. Also, employers are legally required to adequately fund pensions, while individuals are free to put away less than they might need.
Despite these benefits, obligations to fund retiree pensions eventually came to be seen as overly burdensome and risky for employers and shareholders. As a result, employers began phasing out pensions in the 1980s once tax law changes let employees save for retirement pre-tax.
From 1987 to 2022, according to the Bureau of Labor Statistics (BLS), the percentage share of retirement costs borne by private-sector employers through defined-benefit pension plans fell from 86.1% to 29.4%. Employees took up the slack, as the share of those costs they paid through defined-contribution plans rose from 13.9% to 70.6%.
Declining union membership is also tied to pensions’ decline. A 2023 BLS report said 66% of private industry union workers had access to defined benefit plans, compared with 10% of private industry nonunion workers. Today, in addition to union jobs, pensions are now mostly found in government, military and certain public-sector jobs.
7 Jobs That Still Offer a Pension for Retirement
Though pensions are no longer the norm in many industries, several jobs still offer this benefit. Here are seven to make note of:
- Federal government employees: Federal government jobs, including positions within agencies like the FBI, IRS and NASA, often offer pensions through the Federal Employees Retirement System (FERS). FERS includes both a pension and a defined contribution plan, giving federal employees a balanced retirement package.
- State and local government workers: State and local government positions, including roles in law enforcement, firefighting and public administration, frequently provide pensions. Many state and local governments offer defined benefit pension plans funded through contributions from both employee and employer.
- Military service members: The U.S. military provides government-funded pensions to service members who serve at least 20 years. The pension amount is based on the number of years served and the average of the highest three years of base pay.
- Teachers: Public school teachers often have access to pension plans through state-managed retirement systems. Teacher pensions typically offer lifetime payouts, and teachers are eligible for pensions after a certain number of years of service, depending on the state.
- Utility workers: Many utility companies, such as those providing electricity, gas and water, continue to offer pensions to their employees. Utility jobs often involve unions, which have helped preserve pension benefits for workers in these sectors.
- Union jobs: Unionized industries, such as construction and transportation, still often offer pensions to workers. These pensions are negotiated as part of collective bargaining agreements, providing secure retirement benefits for union members.
- Healthcare workers (public sector): Nurses and other healthcare professionals working for state or local government hospitals or public healthcare institutions may receive pensions as part of their retirement benefits package.
Alternatives to Pensions
For those working in jobs that do not offer pensions, there are several alternative retirement accounts that can help provide financial security during retirement. While these options do not offer the guaranteed income of a pension, they still offer tax advantages and the potential for long-term growth. Here are four alternatives:
- 401(k) Plans: Many private employers offer these defined contribution plans where employees contribute a portion of their salary, and employers often match a percentage. The funds are invested, and the employee receives the balance upon retirement, which depends on the plan’s investment performance.
- Individual retirement accounts (IRAs): IRAs allow individuals to save for retirement independently. Both traditional IRAs and Roth IRAs offer tax advantages and are popular options for those without access to employer-sponsored pension plans.
- Thrift savings plan (TSP): A retirement savings plan similar to a 401(k), the TSP is available to federal employees and military members. It offers low-cost investment options and matching contributions from employers, helping participants grow their retirement savings.
- Annuities: An annuity is a financial product that provides guaranteed income for life, similar to a pension. Individuals purchase annuities through insurance companies and in return, the company provides regular income payments during retirement.
Bottom Line
While pensions are becoming less common, certain jobs still offer this valuable benefit. From government roles to union jobs, pensions provide a reliable income stream that helps retirees maintain their standard of living. For those who do not have access to a pension, alternatives such as 401(k)s, IRAs and annuities can still offer a solid foundation for retirement planning.
Tips for Retirement Planning
- A financial advisor can help you create a retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- To find out how much your retirement savings could grow over time, SmartAsset’s free retirement calculator could help you get an estimate.
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