Definition
A retirement plan where the employer promises a defined monthly benefit for life, usually based on salary and years of service, and bears the investment risk. Now rare in the private sector, pensions remain common in government, education, and union jobs.
Why it matters
A pension is guaranteed lifetime income, which changes every other retirement decision: how much to save elsewhere, when to claim Social Security, and how much market risk the rest of the portfolio can carry. Payout elections (single life versus survivor benefit, lump sum versus monthly checks) are often irreversible.
Example
A teacher retiring after 30 years under a formula of 2% per year of service and an $80,000 final salary receives $48,000 a year for life (2% times 30 years times $80,000). Choosing the survivor option lowers the check but keeps it paying for a spouse's lifetime too.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.