🏛️ From My CFP® Studies This Week: Let’s Talk About Pensions

And why they’re not all created equal...

One thing I’m deep in right now in my CFP® studies is retirement income planning. And every time pensions come up, I’m reminded how confusing this topic has been made unnecessarily.

So let’s slow it down.

A pension is simply a retirement benefit that promises some form of future income. What varies is who carries the risk, how the benefit is calculated, and how predictable that income really is.

When people say “I have a pension,” they could mean very different things.

Here’s a clean breakdown.

What a Pension Actually Is

At its core, a pension is a defined benefit plan.

That means:
The benefit is defined in advance.
The income formula is known.
The employer, not the employee, bears most of the investment risk.

This is different from a 401(k) or 403(b), which are defined contribution plans, where you contribute and you carry the risk.

But even within pensions, there are multiple types.

Traditional Defined Benefit Pension

This is what most people think of when they hear the word pension.

It typically provides:
• a guaranteed monthly income for life
• a formula based on years of service and salary
• payments starting at a set retirement age

Example, simplified:
Years of service × multiplier × average salary = annual pension benefit

These are common in:
• government roles
• public education
• unionized positions
• some hospital systems

Pros:
Predictable income
Longevity protection
Less investment decision-making

Tradeoffs:
Less flexibility
Often tied to staying with one employer
Limited or no inheritance unless a survivor option is chosen

Cash Balance Pension Plans

These are still pensions, but they look different.

Instead of showing a monthly income, they show:
• a hypothetical account balance
• annual employer credits
• an interest crediting rate

Even though it looks like an account, it is still a defined benefit plan.
The employer still carries the investment risk.

At retirement, the balance can usually be:
• converted into a lifetime income
• rolled into an IRA in some cases

These are more common in:
• large organizations
• professional groups
• some healthcare systems

Pros:
More transparent
Often portable
Lower market risk for the employee

Tradeoffs:
Income depends on conversion rates
Still less flexible than pure investment accounts

Government and Public Sector Pensions

Public pensions deserve special mention because they often come with:
• vesting schedules
• cost-of-living adjustments
• survivor benefits
• early retirement rules
• integration with Social Security

These plans can be extremely valuable.
They can also be complex.

This is why pension decisions should never be made in isolation.
They affect how much you need to save elsewhere, when you can retire, and how you manage risk.

Supplemental and Hybrid Pension Structures

Some employers offer:
• pension + 403(b)
• pension + 401(k)
• pension + mandatory employee contributions

This creates a layered retirement picture.

The pension provides a stable income floor.
The investment accounts provide flexibility, growth, and liquidity.

From a planning perspective, this is powerful when coordinated well.

Why Pensions Matter in Real Life Planning

In CFP training, pensions are treated as income streams, not just benefits.

That means we look at:
• how reliable the income is
• when it starts
• whether it adjusts for inflation
• what happens if one spouse dies
• how it interacts with Social Security
• how much risk you need to take elsewhere

A pension can allow someone to:
• invest more conservatively
• retire earlier
• take career risks later in life
• reduce anxiety around market swings

But only if they understand it.

The Most Common Pension Mistake I See

Treating a pension as “extra” instead of foundational.

Or avoiding learning the details because it feels overwhelming.

A pension isn’t just a benefit you glance at once a year.
It’s a cornerstone of your retirement strategy.

Understanding it gives you leverage.
Ignoring it creates blind spots.

Why I’m Sharing This With You

Part of my CFP® journey is translating technical concepts into language that real people can actually use.

You don’t need to become an expert.
You do need to understand the system you’re participating in.

Especially as nurses, where pensions, 403(b)s, and benefits are often layered and employer-specific.

This is how we move from guessing to planning.
From anxiety to clarity. From hoping it works out to knowing what you have.