Upticks: 4 Things to Know If You’re Retiring with a Pension
By Luke Sullivan on July 2, 2025
Think pensions are simple? Think again. Jake and Cory break down four important things to know before making your pension decision. They cover payout options, tax implications, survivorship benefits, and ways to align your pension with your overall financial plan. They break it all down with real stories, smart strategies, and a few laughs.
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Read an overview of the conversation below
The Illusion of Pension Simplicity
Many retirees assume that pensions are straightforward—after all, they’re called “defined benefit plans.” But as Jake says, “Choosing the wrong pension option could literally cost you hundreds of thousands of dollars over your retirement.” The complexity lies not in the existence of the pension itself, but in the decisions surrounding how to receive it. Whether to take a lump sum or a monthly annuity, how to handle survivorship benefits, and how to integrate the pension into a broader financial plan are all imporant considerations.
Cory adds that many people fall into a trap of false security, especially when they see a large pension balance. “People maybe haven’t saved as aggressively for retirement outside of their expected pension,” he explains. This overreliance can be dangerous, particularly if the pension is seen as a complete financial plan rather than just a component of one. Jake emphasizes, “Just having a pension is not a financial plan.” Without a comprehensive strategy, retirees risk mismanaging their resources, especially if they carry debt or have high living expenses.
Payout Options: Annuity vs. Lump Sum
One of the most consequential decisions retirees with a pension face is how to receive their pension benefits. The two primary options—monthly annuity or lump sum—each come with distinct pros and cons. Cory outlines the annuity’s appeal: “You’re going to get a predictable income stream each and every month.” However, he cautions that most annuities don’t adjust for inflation, meaning purchasing power can erode over time.
Jake elaborates on the trade-offs: “The lump sum is more risk on your part. But the pro is that you’re detaching from the company.” This detachment can be beneficial if the company’s financial health is uncertain. Additionally, lump sums can offer greater tax flexibility and control over investment strategies. However, they also require discipline. As Jake notes, “You’ve got to invest this money and generate a rate of return that hopefully would be at least as much as the monthly annuity.” The decision is deeply personal and should be based on individual financial goals, risk tolerance, and lifestyle preferences.
Survivorship and Legacy Planning
Survivorship benefits are another important factor in pension planning. Choosing a single-life annuity might offer the highest monthly payout, but it comes with a risk: if the retiree passes away, the income stream stops. Jake shares a personal story: “My grandpa… took the survivorship payout… He should have taken the single life, but he didn’t want my grandma to be without an income stream.” While the decision may not have been optimal mathematically, he felt it provided him and his wife with ‘insurance’—a reminder that emotional and relational factors often play a role in financial choices.
Cory provides a practical example of aligning survivorship benefits with a financial plan. One client chose a “period certain” option to help ensure income for at least ten years, allowing the surviving spouse time to pay off their mortgage. This strategy balanced risk and security, demonstrating how pensions can be tailored to meet specific life goals. For those opting for a lump sum, Jake advises rolling it into an IRA and helping ensure beneficiaries are properly designated. “The worst thing you can do is think you’re doing the smart thing… but then you have no beneficiaries listed,” he warns.
Tax Implications and Income Management
Pension income is typically taxed as ordinary income, which can impact a retiree’s tax bracket. Cory explains, “If they have a pension in retirement, maybe they have Social Security benefits… all of that can ultimately add up to taxable income.” Jake illustrates this with an example: “If you’re getting $4,000 from your pension and $3,000 from Social Security… you’ve got $9,000 of taxable income every month.” This lack of flexibility can limit tax planning opportunities.
In contrast, a lump sum rolled into an IRA can allow for more strategic withdrawals and even Roth conversions, offering potential tax advantages. The key takeaway is that tax implications should be a central part of the pension decision-making process. A poorly planned strategy can quietly erode retirement income, while a well-integrated approach can help enhance long-term financial health.
Integrating Pensions into a Broader Financial Plan
Ultimately, a pension should be viewed as one piece of a larger financial puzzle. Jake emphasizes, “Your pension is not your plan. It’s part of your plan.” This means considering how the pension interacts with Social Security, investment accounts, estate planning, and personal goals. Cory reinforces this point: “It could be helpful to understand what other people… have done… but you should not make the assumption that the path that someone else took is automatically what you should do.”
“The pension decision is easy. Just pick the monthly amount that looks the biggest.” Cory calls this a “gross oversimplification,” likening it to choosing stocks based solely on yield. Jake adds, “You’re not just choosing income, you’re designing your financial plan.” The decision requires careful analysis, self-awareness, and often, professional guidance. For those who struggle with spending discipline, an annuity might offer protection. For others, the flexibility of a lump sum may better align with their goals.
Making the right pension decision is too important to leave to chance. Take the time to evaluate your options, align them with your goals, and seek professional guidance if needed. Schedule a complimentary Pension Decision Audit today to help ensure your retirement strategy is built on clarity, confidence, and long-term success.
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