Inflation Risk: Does Your Pension Have a COLA?
If you decide to take the monthly annuity, you must account for inflation. Unlike Social Security, which saw a 2.8% automatic COLA increase for 2026, the vast majority of private-sector pensions offer a fixed, flat payout. A $2,500 monthly pension feels substantial on the day you retire at age 65.
However, if inflation averages 3% per year, the purchasing power of that $2,500 will be nearly cut in half by the time you reach age 85. When building your retirement budget, you must rely on other assets—like 401(k) withdrawals, IRAs, or part-time work—to bridge the gap as your fixed pension loses its true value over time.
One Response
Good summary, most of which I knew prior but helpful refreshment. Biggest advantage is state (in this case IA) elimination of taxes on pension and related benefits.