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.
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.
I think taking a lump sum is risky i took monthly payments
I would have received a $2100/monthly pension. No spouse. I took a lump sum and grew that into 7 figures. I retired at 51yo and started taking out 40,000/yr at 60yo. I now have RMDs. My RMD in 2026 is $78,900. I slowly have a large portion of my IRA to leave heirs. My lump sum buyout worked great for me.
That information is very informative. Young people should pay good attention to your information. They don’t realize you have to start planning for your retirement at a young age.
I taught my sons to save from their 1st paycheck I to a ROTH-IRA. They should look at this savings as a bill that must be paid every paycheck. They should be fine when they retire.