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.
How long did it take to ‘grow’ your lump sum like that? Just curious.
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.
We’ll SEE huh? Barring (avoiding), LIFE’s unforeseen events (e.g. weddings, births, funerals, car and/or home repairs. There will ALWAYS be the unforeseen. Believe me. JS (Just sayin)
Who did? Young folks don’t listen at THAT age. I didn’t, as most of us reading this article DIDN’T. (just be Honest).
have not seen yet
How do you get a tax break on your pension?
Remember that if you need to go to a ‘Nursing home’ your savings will be depleted until you are broke….after that it’s covered by Medicaid.
In other words…the person who doesn’t have a dime saved gets Nursing home care for free while the person who saved gets shafted for doing the ‘right thing’ and saving for retirement.