Pension planning should be incorporated into an overall retirement plan. For those employed by a company that offers a pension plan benefit, investigating the plan's restrictions and requirements will be extremely helpful. Employees should know when retirement benefits can be claimed and how much of a benefit can be expected. The plan's requirements should also explain whether any vested benefits can be carried over to individual retirement plans if the employee is terminated before retirement age. A pension plan should not be relied on as the sole source of retirement income, but rather incorporated into a larger retirement plan that includes personal savings, government benefits, and individually-funded plans.
Part of pension planning is determining what benefits will be received and when. Many pension plans require an employee to be with the company for a certain period of time before vesting. Once the employee is vested, the amount of pension benefit received directly corresponds to the overall length of tenure with the company, as well as the average income earned over that lifespan. In addition, there may be a reduction in benefits if the employee retires from the company before reaching a certain age.
Another aspect of pension planning is figuring out how much income will be needed in retirement. An individual needs to consider his lifestyle and determine whether he will continue to work part-time or have other sources of residual income. One good rule is to assume that at least 80 percent of current annual income will be needed during retirement. The employee should figure out how much will be received from the pension plan and subtract that from the amount of income needed. Any excess will need to come from other sources such as individual retirement plans, personal savings accounts or government-sponsored retirement benefits.
Maintaining current contact information for the plan's administrator is another important part of pension planning. Many large corporations manage their pension plans through a third-party brokerage firm. This information may change if employers go out of business, merge with another company or restructure the pension. An individual should make sure that contact information is updated if he terminates from the company prior to retirement age and has not yet claimed his benefit.
If an employee is planning on leaving a company prior to retirement age, he should consider what his options are. Part of good pension planning is accounting for all the "what-if" scenarios. Although some companies might allow employees to roll their vested benefits over to an individual retirement plan or cash the benefit out, others will require that it remain in the plan until the employee is eligible to file a claim.
