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Home›Family Finance›The Pension Facts Many Americans Don’t Know

The Pension Facts Many Americans Don’t Know

By Our Editorial Team  |  Published June 22, 2026

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Our editorial team verifies all financial and lifestyle information for accuracy and relevance to senior living.

A watercolor illustration of three shrinking milk bottles, representing the erosion of a fixed pension's purchasing power over 20 years.
A red inflation balloon floats above three milk bottles, showing how purchasing power shrinks over twenty years.

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.

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5 responses to “The Pension Facts Many Americans Don’t Know”

  1. Michael Fletcher says:
    June 30, 2026 at 2:48 pm

    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.

    Reply
  2. WILLIAM D WELCH says:
    July 3, 2026 at 4:44 pm

    I think taking a lump sum is risky i took monthly payments

    Reply
    • CaroleW says:
      August 4, 2026 at 7:55 pm

      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.

      Reply
  3. Lance says:
    July 4, 2026 at 1:09 am

    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.

    Reply
    • CaroleW says:
      August 4, 2026 at 7:59 pm

      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.

      Reply

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