In this article, we’re going to answer the question “do nurses get pensions?”
Because when it comes to saving for retirement whether or not you get a pension is kind of a big deal.
Do nurses get pensions? Yes, some nurses do get pensions. Most jobs no longer provide traditional pension plans, but some government or union nurses may still have access to pension benefits.
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Does your company offer a pension?
If you’re like most of us you probably don’t really think much about what’s happening a couple of months down the road let alone years, especially if it involves retirement.
Unfortunately, not thinking about your retirement can easily lead to a lot of stress down the road.
For those reasons, we think it’s very wise to think about your retirement nice and early to avoid stress as you get closer to retiring.
With all that said, this gets us to pensions because pensions can be a very important part of your overall retirement plan as a nurse.
If you’re a nurse that doesn’t really think much about retirement but is trying to learn everything they can, than employer-sponsored pensions, is definitely a good start.
So let’s begin.
What Is a Pension?
A pension is a type of retirement plan that generates monthly income after you retire (source).
Generally speaking, they’re offered by employers as a part of the benefits package for your job.
Who Offers Pension Plans?
Do you want to figure out who offers pension plans and how you can get one?
With less than 20% of private workers having access to defined benefit pension plans, pensions have lost a lot of popularity in years to the likes of the 401(k) retirement plan.
If at the end of this article you decide you would like to get a nursing job that offers a pension plan than in most cases your best bet for a nursing job with a pension plan would be a government job.
According to U.S. News while less than 20% of private jobs offer pension plans almost 90% of government jobs offer them (source).
Besides government jobs, another way to get a nurse job that has a pension is:
- To join a nurses union.
- Work for a really big company (greater than 500 employees).
- Get a nursing job in the northeast part of the United States.
There are some professions that pensions are more common in than others. For example utility workers and information services have a higher than average pension rate.
How Do Pensions Work?
As we mentioned earlier a pension is pretty much a type of retirement plan.
With the pension either the employee, your employer, or both contribute a pre-decided percentage of money each month into a pension plan while you’re working.
Once you retire you’re paid a monthly income, from that account, throughout your retirement.
The amount of income you’ll receive will be based on different variables but usually a combination of the following:
- Your retirement age.
- The number of years you worked for the company.
- A percentage of your salary while you were working.
Pension Payout Example
To give you an idea of a how a pension might pay out.
You might have a pension that will replace 50% of your monthly income (based on an average of your last 3 years of service for the company) if you retire at age 60 and have worked at least 5 years for the company.
If you retire at age 65 and have 20 years of service for the company they’ll replace 80% of your monthly income.
Generally speaking the longer you work for the company will likely increase the amount of money you’ll recieve for your pension.
What Happens When You Leave Your Job
If you decide to quit your job then you’ll probably be presented with three options (source)
- You can either choose to take a lump sum (all the pension money acquired by that time).
- You can choose to ask for an annuity. (This allows you to receive the pension money at a later date in the form of regular income.)
- You might be able to get a combination of the two.
If you’re not sure how to proceed with a pension, or what options to take, make sure to seek the guidance of a financial planner
The Pros and Cons of Pension
Like any retirement plan, pension plans come with advantages and disadvantages.
At the same time not all pension plans are created equal.
It’s up to you to decide whether your employer’s pension policies benefit you or not.
That’s why you should always weigh the pros and cons beforehand.
Keep in mind that some employer pension plans are optional, while others are mandatory.
Here is our take:
What Do We Like about Pensions?
The Pros of Pension Plans
1. Employer’s Contribution
Perhaps, the biggest benefit is that your employer invests an equal (or similar) amount of money into your pension account.
Keep in mind that not all pension plans have employer contributions, but for those that do it’s definitely a big plus.
2. Financial Security
Are you afraid of retirement because you may not have enough saved?
Ideally, you won’t have to face this situation if you have a pension account.
For those with a defined benefit pension plan you’re payments are guaranteed after retirement.
3. Tax Relief
Most organizations deduct your pension contribution from your salary before they deduct your tax.
This means you’re not paying taxes on your pension contributions.
For many, this can significantly lower your tax liability while increasing the amount you’re able to pay into your pension.
4. You’re Forced to Save for Retirement
22% of Americans only have $5,000 saved for retirement. 5% have between $5,000-$$24,999. Only 16% have saved more than $200,000. Almost 50% of Americans will report not even knowing how much they have saved for retirement (source).
This might seem trivial but for many Americans, but rest assured for many this is a good thing.
Actually this has also been one of the negatives some critics have disliked about the switch to 401k plans.
Pertaining to a 401k, while some employers may start employees at a certain contribution percentage by default the employee is usually free to change their contributions to 0%.
With a pension plan, many employees are forced to enroll in that pension plan and save for retirement.
While some employees may complain about the lack of freedom one thing is clear many employees who normally would not save for retirement will have something they can fall back on even if they don’t do anything else.
Related Article: How to Start Saving Money as a Nurse
What Do We Dislike about Pensions?
The Cons of Pension Plans
1. Lack of Access to Your Money
With a pension plan usually, you can’t access your pension account until you reach a pre-determined retirement age.
While many financial experts would recommend saving for retirement and leaving that money alone until retirement life does happen and many nurses might want to be able to access that money if they needed to.
Apart from this, some nurses may find it very inconvenient if they’re planning to take early retirement.
Related Article: What Age Are Nurses Retiring?
2. It’s Complicated
It’s not just nurses, but many people, in general, find it difficult to grasp the logistics and rules involved in their pension plan.
Many pension rules and guidelines are not so clear cut. For example:
When you’ll vest in the plan?
What calculations do they use to figure out how much you’ll get?
Here’s one that confuses most people.
What are you going to do when they offer you a lump sum instead of the annuity payments? Or if they offer you a lump sum to reduce your retirement payments?
How do you know which one is a better deal? Or which one is a better deal for YOUR life circumstances?
As you can see it’s not very clear cut at times.
Tips for Retirement Planning
Regardless of what you decide to do, one thing is clear. You should start planning for retirement sooner rather than later. Start managing your money and saving for retirement.
Here are a few tips to follow (source):
- Start retirement planning early and go through the fine details before signing up for a pension plan (or any retirement plan).
- Many experts recommend saving at least 15% of your income each month.
- Research the market before choosing a retirement plan.
- Avoid using your retirement savings before the designated time.
- Make sure to have back-up plans for retirement (i.e. you probably shouldn’t just depend on the pension).
- Consult a financial advisor to create a retirement strategy for you and your family.
Frequently Asked Questions
1. Should nurses invest in a pension plan if they have a choice?
There are many reasons why you may or may not want to invest in a pension plan.
Ultimately this is something you should seek financial guidance to make sure you look at all the options and make the best decision for you and your family.
Here’s a video from Dave Ramsey that talks about pension plans that may help you in your decision making.
In the end, many nurses consider pensions as a reliable retirement plan.
While there are some pros to pension plans there are definitely some cons that nurses need to be aware of.
In the end, a pension plan is just one piece in your overall nurse retirement plan.