Pension Plans for Individuals

How You Can Get One Using Annuities

A guaranteed paycheck to make sure
you don't run out of money in retirement.

The Personal Pension

Blueprint Income’s Personal Pension is the best way to get pension-like income in retirement using annuities. It’s an account that you can fund flexibly over time, just like your 401(k) or IRA. Each time you put money in, Blueprint Income will use it to purchase the best annuity for you from across its insurance providers, maximizing price and rating based on your preferences. There is no requirement for how you fund the Personal Pension, but the more you put in, the more income you’ll get in retirement. Plans start with a $5,000 initial contribution, which can come from existing retirement savings, like a 401(k) rollover or IRA, or new retirement savings from your bank account.

To get an estimate for what a Personal Pension could look like for you, enter your information below:

What Is a Pension?

A pension provides guaranteed income in retirement. Up until the 1980s, many employees had access to a pension from their employers. If they worked a minimum number of years with the same employer, they would receive a defined amount of income, starting when they retire and continuing for life. That’s why pensions are also known as “defined benefit” plans – they provided a set, defined benefit.

The pension guarantee is traditionally provided in one of two ways:

  1. A guarantee backed by the employer.

    Here, the employer is creating a fund to hold all contributions into the pension and pay out all benefits in retirement. They manage the assets and administer the benefits.

  2. A guarantee backed by an insurer.

    Here, the employer has outsourced the pension to an insurer in the form of a group annuity contract. It’s the insurer that manages the assets and administers the benefits.

How Pensions Work

Pensions work by pooling risk across all participants of the pension system. If you’re familiar with Social Security, it’s a very similar concept, except that an employer is running it for its employees instead of the government running it for all Americans.

While you’re working, your employer (and maybe you as well) contributes money to the pension fund. That money gets invested on your behalf. Then, when you retire, you start to receive monthly benefits from that fund. The monthly check you receive is calculated based on either annuity rates or a formula making use of your salary and years of service.

The income you receive is guaranteed to continue for as long as you live, something individual retirement investments cannot offer. That’s because the risk of how long you’ll live is pooled across all participants. Those that outlive their life expectancy – and maybe would have otherwise outlived their savings – continue to receive income using the funds not needed by those that pass away prematurely.

Pensions vs. 401(k)s

Most of us now rely on 401(k)s for retirement planning, but did you know that was never the plan? 401(k)s were created as a pension supplement for company executives; they were never meant to replace pensions. That’s because they don’t provide the same protection as pensions do.

401(k) = Defined Contribution

A 401(k) plan is also known as a defined contribution plan because the level of contribution is all that can be specified ahead of time. That is, we only know how much we put in to the 401(k), we don’t know what we’ll be able to get out – in income or assets – at a later date.

Pension = Defined Benefit

Pensions on the other hand provide a defined benefit. They tell you exactly what you’ll get as a benefit in the future. The unknown then becomes how much you or your employer needs to put in today to get that defined benefit.

Which Is Better?

There are pros and cons to each approach, but ultimately you’re better off heading into retirement with both of them.

Strengths of the 401(k):

  • Flexibility around how much to contribute
  • Flexibility around how to invest your money
  • Access to your money whenever you want (although you’ll pay a penalty if you access it before 59 1/2)

Strengths of the pension:

  • Stable, guaranteed income to live off of in retirement
  • Protection from outliving your savings (longevity risk)
  • Protection from market downturns (market risk)

The 3 Big Retirement Risks

There are three big risks that can get in the way of a financially secure retirement. And, with the exception of Social Security, no one retirement plan can cover all of them. That’s why it’s important to have a diversified approach to retirement planning. The risks are: longevity risk, market risk, and inflation risk.

Outliving Your Savings (Longevity Risk)

If you’ve saved for retirement based on a specific lifespan (or haven’t even thought about it), you could run out of money. This isn’t a risk for Social Security, pensions, or annuities, which provide income for as long as you live. But it is a risk for all other savings accounts, like 401(k)s, IRAs, bank accounts, etc.

Losing Money in Downturns (Market Risk)

If you’re invested in the stock and bond markets, your savings are susceptible to losing money in market downturns. Depending on when the downtown happens, such as when you need to use the money, the consequences could be irreversible. This isn’t a risk for Social Security, pensions, or annuities which are protected from the market.

Reduced Spending Power (Inflation Risk)

Inflation is the increase in prices over time, making life “more expensive.” If your retirement savings/income don’t keep up with inflation, you’ll be able to afford less and less over time. This isn’t a risk for Social Security, which is indexed for inflation. It’s theoretically not a risk for stock market investments as well, whose value should rise with inflation. But it is a risk for pensions and annuities without inflation protection.

Like with all other risks out there, protecting yourself costs money. It’s up to you whether paying for protection makes sense for your situation. To be best protected from these risks, make sure you have all of the following in your retirement portfolio:

 Social SecurityPensions/AnnuitiesMarket Investments
Market RiskProtectedProtectedNot Protected
Longevity RiskProtectedProtectedNot Protected
Inflation RiskProtectedUsually Not ProtectedSomewhat Protected

Note that while Social Security is the winner in that it protects you from all three risks, it only covers, on average, 40% of someone’s retirement spending. So, it will need to be supplemented with pensions/annuities and market investments.

Annuities As Pension Replacements

Employers are no longer offering pensions, but insurers still offer retirement plans that are essentially the same. They’re called annuities.

Annuities are agreements between you (or an employer) and an insurer to provide steady income in retirement in exchange for money provided today. As mentioned above, employer pensions are sometimes structured as group annuity contracts. But, you can also get annuities outside of your employer from insurance companies like Guardian, New York Life, and Lincoln Financial, to name a few.

There are many types of annuities out there, but the ones that are recommended and offered by Blueprint Income are called income annuities. They’re the simplest and most cost-effective way to get guaranteed income in retirement. And, because an annuity is only as good as its guarantee, we only work with insurers rated A or higher by A.M. Best.

About Blueprint Income

Blueprint Income is a team of financial experts, actuaries, and engineers on a mission to redefine financial security in retirement. We believe everyone should have access to the guarantee of a pension regardless of one’s employment status. And, we’re on a mission to make that possible by reinventing the annuity market. If you work with Blueprint Income, you’ll get:

  • Access to the widest selection of highly-rated insurance companies out there
  • Technology that enables you to optimize your annuity purchases
  • A team of experts acting as fiduciaries to put your interest first
  • Straight talk about annuities that do or don’t make sense

Getting Started

If you’re interested in a Personal Pension, the next step is to build a customized plan. You can build it based on how much income you’d like in retirement, how much you’re able to contribute, or both. You can complete the sign up process online or schedule a consultation if you’d like additional assistance.

To learn more about Blueprint Income, annuities, and the Personal Pension, by head to our resource center: