Long before we had things like smartphones and Instagram, your career typically revolved around a single employer. You worked for one company for decades and then, when you retired, with little to no action on your part, your company would provide you with a pension — payments that would come regularly for the rest of your life, no matter how long you lived.

Today, outside of government jobs, pensions are about as common as phone booths. If you don’t have a pension, but the idea of getting a regular check for the rest of your life is appealing, you may want to consider an annuity. Like pensions, annuities also provide income for life, but they don’t work quite the same. So what’s the difference between a pension and an annuity?

WHAT IS A PENSION?

A pension is a retirement plan that’s offered through an employer. Pensions are known in the industry as defined benefit plans, or DB plans. That differs from most retirement plans today, which are defined contribution (DC) plans — for example, your 401(k) is a DC plan.

With a defined contribution plan, the contribution made by the company is defined — perhaps you contribute 6 percent of your salary and your company matches your contribution. However, when you get to retirement, it’s on you to decide how you’ll generate income with all the money you saved.

With a defined benefit plan, your benefit (how much you’ll get in retirement) is defined. You don’t have to worry about contributions or even how to create the income. Your company will just send you a check every month.

In addition, many pensions will give you options for structuring your payments so that they continue in some form for your spouse after you pass away. You may also be able to take a single lump sum payment from your pension and use the money however you see fit. However, that means you’ll be responsible for generating your income, and you could run out of money someday.

Pensions are insured by the Pension Benefits Guaranty Corporation (PBGC). The PBGC is a government agency that will try to get you as much of your pension as possible if the company that backs it goes bankrupt.

WHAT IS AN ANNUITY?

Annuities are financial products built by insurance companies. They come in two main forms: annuities that help you save for retirement and annuities that provide steady income, usually in retirement. For the purposes of this article, we’re going to focus on the ones that help provide income in retirement. They’re known as income annuities.

Here’s how it works. You make a payment to an insurance company, often a portion of your retirement savings. That money may come from a 401K, an IRA, an accumulation annuity (the kind of annuity that helps you save for retirement), or from another savings account. Once you purchase the income annuity, the insurance company will make regular payments back to you over time, usually for as long as you live. That means you could live until you’re 110 or older without having to worry about running out of money.

As with a pension, once you start receiving income from an annuity, you don’t have to worry about how that income is being generated. The insurance company handles all that for you. Unlike pensions, which are guaranteed by the government, annuities are guaranteed by the company that sells them. So before you buy an annuity, research the company behind it to see if it is a solid company with a long track record of financial stability. In addition, there are many different ways to build an annuity depending on your situation. So it’s a good idea to work with a trusted financial advisor to make sure you get the right annuity for you.

As you can see, while there are some differences between pensions and annuities, the purpose of both is the same: to provide steady retirement income that you can’t outlive. If you don’t have a pension and are interested in guaranteed income for life, an annuity may be the right option for you.

Guarantees in an annuity are backed solely by the claims-paying ability of the issuer.

Withdrawals from annuities may be subject to ordinary income tax, a 10 percent IRS early withdrawal penalty if taken before age 59½, and contractual withdrawal charges.

Income annuities have no cash value. Once issued, this annuity cannot be terminated (surrendered), and the premium paid for the annuity is not refundable and cannot be withdrawn.

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