A pension is known as a “defined benefits retirement plan.” The IRS defines a benefit plan as “a fixed, pre-established benefit for employees at retirement.” In other words, your employer guarantees how much money you will receive in retirement and on what schedule. The most common pension plans promise you a fixed, monthly payment for the rest of your life once you retire, although some plans promise a lump sum payment option. Pensions are different from “defined contribution retirement plans.” These are plans are provided by employers for employees to contribute to for retirement while working there i.e a 401(k)

In this Retirement Tuesday Tip video we will help you understand what happens to your pension when you die.
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Pensions are an important part of retirement planning, ensuring that individuals have a source of income in their later years. However, many people are unsure about what happens to their pension when they die. This is an important consideration, as it can have a significant impact on the financial security of their loved ones.

There are several factors that determine what happens to a pension when a person dies. These include the type of pension plan, whether the pension holder is already receiving payments, and whether they have named a beneficiary.

If a person has a defined benefit pension plan, the rules regarding what happens to the pension when they die will depend on the specific terms of the plan. In some cases, the pension may continue to pay out to a surviving spouse or other beneficiary, while in other cases, the payments may stop upon the pension holder’s death. It is important to carefully review the terms of the pension plan to understand what will happen in the event of death.

For those with a defined contribution pension plan, the situation may be different. If the pension holder dies before they begin receiving payments, the value of the pension may pass to their named beneficiaries. However, if the pension holder is already receiving payments, the options for what happens to the pension upon their death may be more limited. In some cases, the pension may stop paying out, while in other cases, the payments may continue to a surviving spouse or other beneficiary.

It is also worth noting that in some cases, pension plans may offer the option to purchase a joint and survivor annuity, which would ensure that the pension continues to pay out to a surviving spouse after the pension holder’s death. This can be a valuable option for those who want to ensure that their spouse is provided for after they pass away.

Another important consideration is whether the pension holder has named a beneficiary for their pension plan. By designating a beneficiary, the pension holder can ensure that their pension benefits will pass to their chosen recipient upon their death. This can be an important aspect of estate planning and can help to provide financial security for loved ones after the pension holder passes away.

In conclusion, what happens to a pension when a person dies will depend on a variety of factors, including the type of pension plan, whether the pension holder is already receiving payments, and whether they have named a beneficiary. It is important for individuals to carefully review the terms of their pension plan and consider their options for ensuring that their loved ones are provided for after their death. Seeking guidance from a financial advisor or estate planning professional can also be helpful in understanding the options available for ensuring that pension benefits are passed on to beneficiaries.