What The Wealth Retirement Podcast

Retiring in the US with a Pension? How to Make it Fit with Social Security and Savings? (121)

• Jonathan Bednar II, CFP • Episode 121

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Too many retirees make one pension decision they can’t undo and it reshapes their entire financial future. We break down the real trade-offs hiding behind payout options, survivor benefits, and the lure of a lump sum, then show you how to weave your pension together with Social Security and investments to build a calm, resilient retirement plan.

We start by reframing the pension as a supercharged bond; steady, predictable income that can cover the must-haves and free your portfolio to fund the fun stuff. You’ll learn a simple two-column method to map fixed expenses against guaranteed income, why 80 to 100 percent coverage is a powerful target, and how that floor helps you sleep at night when markets get rough. From there, we unpack the key payout choices: single life for maximum income, joint-and-survivor to protect both lives, and variations with different survivor percentages. We explain how to stress test each option against age, health, tax implications, and timing your Social Security benefits.

A candid case study shows the cost of chasing the biggest monthly number and leaving a spouse with too little income. We also walk through when a lump sum can work; low fixed expenses, solid guaranteed coverage, strong legacy goals, and the discipline to manage market risk after rolling to an IRA. To keep you out of trouble, we highlight common mistakes like ignoring inflation, misreading the pension’s bond-like role, and making decisions in silos instead of as a system. By the end, you’ll have a clear framework: cover essentials with guarantees, fund goals with growth, and choose a payout that protects the person you love most.

If this helped you think more clearly about your pension, subscribe, share it with someone who needs it, and leave a quick review. Your support helps others find the show and make smarter, safer retirement choices.

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Thanks for Listening!

Jonathan

SPEAKER_00:

If you're in the US and have a pension, you have one of the most powerful tools in your financial toolkit. Most people, unfortunately, don't understand how pensions work, and one wrong choice can't be undone, whether that's taking the wrong payout option, not understanding the survivor benefit. I've seen people roll their pension into their IRA thinking that they can just easily beat the market, only to lose their guaranteed payment that would cover all of their basic bills, their basic expenses. I've also seen people take the wrong payout option only to lose their spouse and not have a pension payout anymore. More on that later. I'm going to tell you exactly how pensions work, walk you through so that you can make an informed financial decision on how those work with your Social Security, your investment, so that you have a confident and clear financial plan. I'm your host, Jonathan Bedner, certified financial planner, owner of Paradigm Wealth Partners. We're going to talk all things pension. Pensions are rare. They're not just like a 401k. And just because you have one, if you're fortunate enough to have one, means you're unlike everybody else that only has a 401k. The problem is people think in silos. They think, I'll just want to retire and turn on my pension, or I'm going to roll it over into my 401k or my IRA and I'm going to start investing it to beat the market. Or, you know, I'll just start it when I take Social Security. And what they fail to do is see how all of these work together, almost like a puzzle. How do we put these pieces together so that the puzzle is complete and you see the full picture, the vibrant full picture of that puzzle? So this leads to bad timing, unnecessary risk, and irreversible mistakes when you're thinking in these silos, when you're not making a clear, educated decisions. One of the most powerful tools in your retirement arsenal, don't mess it up by just making one-off decisions willy-nilly. Think of your pension like a supercharged bond. It's not a bond, but let's think of it that way for an example. A bond is a type of investment where you loan somebody money and in return they give you some fixed payment, some fixed interest. Well, a pension, you've given someone your working career, your life, your time, your your your work history, your your life. And so when you make that trade-off, some employers provide pensions. And so in return, when you choose to retire, one of the options you can do is have that pension make payments. So your employer would owe you these predictable monthly checks, similar to that bond, getting these predictable interest payments. And so that is like bond income. Again, it's not bond income, but for oversimplification reasons, we can think of it in kind of the same light. So for many retirees, the present value of that uh income generated by the pension could be like having millions of dollars set aside in retirement. As an example, let's assume that you're getting um four, let me get my calculator out. Let's say you get$4,000 a month in pension income times 12 months is$48,000 a year times 25 years. That's like having a$1.2 million investment portfolio, except you didn't have to save$1.2 million to get the income. You provided your working career or intellectual capital, uh, your dedication to the employer, and in return, they give you that$4,000 a month. So it shouldn't be the end-all be all to your retirement plan. You should still have the 4K or 403B, but having that pension would be very, very similar to having a$1.2 million retirement nest egg tucked away, couple that with Social Security, and you've got two really nice guaranteed incomes that help cover a lot of your fixed expenses. So let's discuss how we can build a framework to match our guaranteed income with our fixed expenses. So here's the formula that we see people use to determine what that should be. First of all, you should list all of your fixed expenses: your mortgage, your insurance, your utilities, your food, your medical, the things that you have to have to live in retirement. From there, you're gonna list on a second column your guaranteed income. So that would be your Social Security, your pension, if you have an annuity, something like that. Anything that pays guaranteed payments to you, you should list those down in the second column. Once you look at those two numbers, if your guaranteed income covers between 80 to 100% of your fixed expenses, you're in a really good position to have a really sound retirement that lets the other retirement account, your savings, your 401k, those sort of things become the nest egg to funnel your travel, your dreams. We talk a lot about dreams here at Paradigm Wealth Partners. So your travel, your dreams, the the kitchen remodel, the Corvette you've always wanted, the things that are fun in your life because your fixed expenses are already covered. You have you have those covered with those guaranteed income streams. As you analyze your pension, you can start to become overwhelmed by the options. Typically, there are four or five ways to determine how you're going to make these pension distributions. Are you going to take a lump sum like we've been talking about? Are you going to take single life expectancy that maybe has a higher monthly amount? Are you going to make sure that your wife has or spouse has uh a pension that it would be the same whether either one of you pass away, you're fully covered? Or some of the various other options that we see in the survivor benefits. And those survivor benefits matter more than you think. What we see a lot of times is people get too caught up in how much it can I get this to pay me? What's the most amount the pension can pay me? And while I think what's the most amount this can pay me is certainly a valid question to look at, you should also be concerned about what happens to the person that I love the most if I'm gone. And so that is one of the biggest things that we do as we evaluate these pensions, choosing the right payment option. Let me give you a real case study for someone this week that I had talked with. Uh, she was a lady in her early 70s and uh had a house that she had had built with her husband, small kind of a cabin-ish house, a couple hundred thousand dollars, not not fancy. Um then they had another house that they lived in, also another couple hundred thousand. I mean, not a lot. These two together are probably worth 450 to 500,000. And as we were talking, one of the things that she brought up is how her her husband died about two years ago. How things look so much different now than they did just two, three, four years ago when her husband was alive. And as I uh asked more questions and and asked her to tell me more about what happened is is when she told me that her husband died a couple years ago and he had a pension. And one of the things that he did without consulting her, without consulting a financial advisor to see how you know these options make the most sense, uh, was he just selected the single life option, the option that paid the most money, because it it looked good. You know, I he just assumed that he would live, I guess, forever. Um, so he took the option that paid the most money, paid actually, we've referenced this a couple of times, the dollar amount. He it paid her, or paid him, I should what I should say, paid him$4,000 a month. And uh unfortunately, just a couple years later, he passed away. He was 71 years old. Um, she's 70 today. And so she's lived without this pension for a couple of years, and now she's living on Social Security at$1,700 a month, you know, being forced to sell one of these houses just to continue to pay the bills and make ends meet. However, if we could turn back time and he met with a financial advisor, or if he just did the research on his own and just took a little bit more time to understand the pensions and how they work with Social Security and investments and you know, analyze their fixed expenses, the things that we've already talked about here could have made a huge impact on their success in retirement should one of them pass away early, like he did. She would still be receiving$1,000 a month, maybe slightly less, or if he took a plan to cover both of their lives, maybe he would have been getting, I don't know, let's say$3,000. Um, if it covered both their lives instead of the$4,000 for single life. Well, if that happened, she's still getting$3,600 a month plus the$17 for Social Security. She's at$5,000 a month. That's$3,300 more than she's, you know, getting right now. So it ends up being a huge mistake that I see in real life happen. So when I talk about these things today, uh I'm sharing real scenarios, scenarios that we see happen every single day just because people don't take a little bit of time to understand how these work and how do you make a best decision. These are these are irreversible decisions. It is imperative that if you don't know what you're doing, you consult someone that does. At a minimum, talk to your spouse about it, don't just wing it. So uh I wanted to share that just so you see how imperative it is to make these decisions and have a full understanding and grasp so you you understand what you're potentially leaving on the table. So let's kind of move into when a lump sum may make sense. A lump sum necessarily isn't necessarily the wrong thing to do. Again, we've talked about how you know if you leave the pension and you take those payments, you take a lot of pressure off you, you have guaranteed payments coming in to cover your fixed living expenses. That's huge because it lets the rest of your portfolio be the fun money. But if we look at, you know, maybe the flip side of that, when should you take a lump sum? Well, I would look at that and say, well, if your expenses are very, very low, which we have clients whose expenses are two to three thousand dollars a month, it's fully funded by Social Security, you know, and it's and it's pretty easy. Life's good. So there's not a lot of pressure or stress for having these higher incomes. The so I guess what I would say is if your guaranteed income is covering your fixed in fixed expenses, or your fixed expenses are very, very low, then maybe perhaps it's it's worth taking the lump sum distribution. Or maybe you want more control, or you strongly have a strong feeling about leaving money to your kids. You know, one option is you want to make sure you and your spouse are covered in retirement, but the other option may be the lump sum provides more legacy planning for your children. So there's a couple of different things to think about as you're evaluating guaranteed payments for your life, or do you make lump sum distribution and roll it into an IRA and then decide how do you take payments from there? So these are things that you know you can do on the back of a napkin, on a piece of paper. Again, something you should really think through versus making willy-nilly decisions, like uh Mr. Mr. Person that I just discussed. Mr. Person probably shouldn't have said it that way, but you know, the the case study where I just told you about the real conversation um where her husband just made kind of a uh lackluster decision and it ended up costing um her in the long run because she doesn't have adequate cash flow to cover those living expenses. So a couple of common mistakes is ignoring the bond value, choosing the highest income stream just because it's the highest income stream without considering you know you or your loved ones, maybe being overly conservative on your investing, not planning for inflation, taking a lump sum for the wrong reasons. There's there's a plethora of things that you know are mistakes that you should you should be thinking through because you don't want to make the same mistake, especially if you've got educational content like this to help you make informed and confident decisions with your pension. Final thought your pension isn't just a paycheck, it's the backbone of your retirement. You have to get this right so that your lifestyle is protected, your spouse is protected, your portfolio can focus on growth and being the fun money of your retirement. You'll sleep better at night. These are major impacts to your retirement plan and why they should be well thought out when you're making financial decisions, but specifically today on making decisions about your pension. If you want to know how I can help, you can schedule some time with me in the in the about section. My calendar link is there. We're happy to chat. If you haven't already liked and subscribed, please do so. Be confident in your retirement everywhere. Thanks for joining me on another episode of What the Wealth. If you enjoyed the episode today, smash that subscribe button. It helps me more than you think. Also, if you found this episode insightful and the light bulb went off, share it. Your friend Aunt Judy, the random guy in the office who's always talking about investments. Wealth isn't about just the chip chain. It's about our choices, chances, and changing our financial futures. The information in this podcast is informational and general in nature and does not take into consideration the listener's personal circumstances. This podcast is not intended to be a substitute for specific in financial, legal, or tax advice. You should consult the approved qualified professional prior to making the final decision. Security is offered through LPL Financial, member FINRA SIPC. Paradigm Wealth Partners is the other business name for Independent Advisor Alliance. Investment Advice offered through Independent Advisor Alliance, a registered investment advisor. Independent advisor alliance and paradigm wealth partners are separate entities for LPL Financial.