Your pension plan pays you a benefit when you retire. This benefit, combined with your personal savings and Social Security, serves as a three-part system, which should give you all the income you need after you retire. The company normally calculates your pension benefits when you retire. However, some governments provide you with a formula to help you determine how much your pension benefits will be when you retire. Your actual benefits will vary according to the company you work for and the specifics of the pension plan.
Gather your pension documentation. Your human resources department will have your pension information available for you as well as any formulas you need to calculate benefits.
Gather your work history information. You must know how long you have worked for the company. Most pension plans calculate payments on the basis of your years of service.
Obtain your salary history. Some pensions take the highest three consecutive earning years, average them, and multiply this number by a percentage. You'll need to know what your three highest earning years were.
Calculate your pension amount. Your human resources department should give you the formula to calculate your pension income. Once you know your years of service and your income information, simply input the numbers into the formula and perform the calculation. The resulting number will be your pension income payable to you when you retire.
Tips
Most pension income is taxable. You must report this income on your federal and state income tax return, unless your state specifically excludes your pension income tax or your pension qualifies for an exemption under federal tax laws.
References
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
- "The Calculus Of Retirement Income"; Moshe A. Milevsky; Cambridge University Press; 2006
- "Ernst & Young's Personal Financial Planning Guide, 5th Edition"; Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004
- IRS.gov: Publication 575
- U.S. Department of Labor. "Types of Retirement Plans." Accessed July 25, 2020.
- Department of Labor. "What You Should Know About Your Retirement Plan," Page 4. Accessed July 25, 2020.
- Department of Labor. "FAQs about Retirement Plans and ERISA," Page 4. Accessed July 25, 2020.
- Internal Revenue Service. "Topic No. 410 Pensions and Annuities." Accessed July 25, 2020.
- Internal Revenue Service. "Publication 575 (2019): Pension and Annuity Income," Page 6. Accessed July 25, 2020.
- Department of Labor. "What You Should Know About Your Retirement Plan," Page 6. July 25, 2020.
- Department of Labor. "FAQs about Retirement Plans and ERISA," Page 12. Accessed July 25, 2020.
- Pension Benefit Guaranty Corporation. "Your Guaranteed Pension: Single-Employer Plans." Accessed July 25, 2020.
- Social Security Administration. "The Disappearing Defined Benefit Pension and Its Potential Impact on the Retirement Incomes of Baby Boomers." Accessed July 25, 2020.
- Department of the Treasury. "Treasury Issues Final Rules Regarding Longevity Annuities." Accessed July 25, 2020.
- IRS. "IRA Deduction Limits." Accessed July 25, 2020.
Tips
- Most pension income is taxable. You must report this income on your federal and state income tax return, unless your state specifically excludes your pension income tax or your pension qualifies for an exemption under federal tax laws.
Writer Bio
I am a Registered Financial Consultant with 6 years experience in the financial services industry. I am trained in the financial planning process, with an emphasis in life insurance and annuity contracts. I have written for Demand Studios since 2009.