If your job offers a traditional pension, that pension usually fits your need for base lifetime income. If you have no pension, an individual annuity can fill that gap by creating your own lifetime checks. According to the IRS, a traditional pension is an employer-funded plan that promises a fixed, pre-established benefit (IRS defined-benefit guidance).
U.S. SEC Investor.gov describes an annuity as a contract between an individual and an insurance company for retirement income. The choice turns on who funds the promise and what backs it.
Table of Contents
- How Each Option Pays You
- Who Bears the Risk of Outliving Your Money?
- What Backs Your Payment if the Payer Fails?
- How to Choose for Your Goals
How Each Option Pays You
According to the IRS, a traditional pension is an employer-funded defined-benefit plan that promises a fixed benefit (IRS defined-benefit guidance). Your employer funds the plan. You receive the promised amount at retirement. U.S.
SEC Investor.gov describes an annuity as a contract between an individual and an insurance company for retirement income. You hold the contract directly with the insurer. The contract terms set your future income. For example, a long-service employee may start retirement with automatic pension checks. A self-employed saver with no pension may use an annuity to get similar regular checks.
Who Bears the Risk of Outliving Your Money?
The CFPB explains in its pension-payout guide that lifetime pension or annuitized payments shift longevity risk away from the retiree (CFPB pension-payout guide). You get steady income for life. The payer must make the money last, not you.
The CFPB also notes that a lump-sum payout leaves you responsible for making savings last. If you expect a long retirement and lack other base income, lifetime checks ease withdrawal pressure. If you want control or cash for debt, a lump sum keeps options open but keeps the risk.
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What Backs Your Payment if the Payer Fails?
The PBGC says it backstops private single-employer pensions and pays basic benefits up to legal limits if a plan fails. For plans ending in 2026, the maximum is $7,789.77 per month at age 65 as a straight-life annuity. The limit is less for joint-and-survivor forms or earlier ages, per the PBGC (PBGC maximum-guarantee tables).
FINRA notes that annuity guarantees instead depend on the issuing insurer's financial strength and claims-paying ability, plus state guaranty coverage. They do not carry PBGC insurance. Check the insurer before you count on the income.
How to Choose for Your Goals
Buy only as much lifetime income as your base expenses need. Keep flexible savings separate for travel, repairs, and health costs. A pension already covers that base role when you have one.
FINRA warns in its investor insight that individually purchased annuities can charge surrender, mortality-and-expense, administrative, underlying-fund, and rider fees (FINRA investor insight on annuities). Compare these items before you sign: Ask for the total annual cost in writing and for payouts with and without survivor coverage. Pick the contract only if the lifetime gain outweighs the yearly drag.
- lifetime-income need versus flexible savings
- total fees in dollars per year
- survivor options for a spouse
- insurer strength and claims-paying ability
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