Members of a pension plan have the understanding that, upon retirement, there will be income streaming in for the remainder of a retiree's life even when working income stops. Pension income is based on a formula and can be determined with a pension calculator using certain criteria, including expected age of retirement and amount of money contributed by the employer and employee. Once the payments are clear, you can budget pension income the way you would structure any household budget, earmarking funds for food, housing, and more. Unless there is another revenue stream, pension payments may be the only income postretirement.
In order to budget for pension income, you need to know how much money will be coming in. A pension plan administrator is able to determine at a given point in time how much pension payments will be. Also, many financial websites on the Internet have pension and retirement calculators that can help with this.
Living on a pension income may not be easy, but it is not impossible, and in some ways, budgeting for a pension begins before those payments even begin. The key is to begin setting retirement goals early in the years leading up to retirement. Eliminate or consolidate as much debt as possible so there are fewer financial obligations to budget for. If there is an option to contribute to a pension plan from a salary, you may need to increase the percentage of contributions so that there may be more pension money available upon retirement. Also, determine whether it makes sense to earn a one-time lump sum pension payment or to receive regular pension distributions for the life of your retirement.
When budgeting pension income, there are some absolutes and some miscellaneous items to consider. For instance, absolutely continue making payments on health insurance and life insurance policies. These assurances become more important as people age and can prevent placing a burden of care upon a loved one in the event of an emergency. Housing is another must, and if a mortgage is paid off at the time of retirement, budget in payments for taxes and other upkeep to prevent any unexpected financial pressure from emerging.
Just because you are relying on pension income does not mean you have to be cheap or even frugal in every decision. Make room in a retirement budget for social activities and to upgrade things when necessary, such as a vehicle. If you plan on traveling after retirement, you may want to consider adding different revenue streams in addition to pension payments, such as income from a part-time job.