Self-funded Pension Plans

Most of us are working hard right now, not only to meet our routine monthly expenses, but also to amass some savings to make sure we can live comfortably in our retirement years. Self-funded pension plans are plans purchased from insurance companies. They offer three main benefits:

• • Another way to increase your retirement savings
  • Additional protection to your savings
  • Guaranteed monthly income while you’re retired

Depending on what stage of life you’re in right now – either close to retirement or several years away – you likely have different financial concerns right now. That means that a different type of self-funded pension plan might appeal to you at different times in your life.                        

Like 401(K)’s and IRA’s, deferred self-funded pension plans grant you a savings vehicle that is tax-deferred. However, unlike those types of accounts, deferred self-funded pension plans have no yearly contribution limit that determines how much you can invest. Like any investment vehicle, there is some risk involved, and there are penalties for withdrawing money prior to retirement age.

If you’re still several years from retirement, a deferred self-funded pension plan can give you a way to save more money that can be used during your retirement years. Some deferred Self-funded pension plan offer a variable rate of return, and some offer a fixed rate of return. You’ll likely have more opportunity for growth with a variable plan, but you’ll also assume more risk because of it. If you want less risk and a guaranteed (but likely lower) rate of return, a fixed self-funded pension plan may be the way to go.

If you’re about to retire and you’re concerned that you aren’t going to have enough funds in Social Security or your retirement accounts to meet your expenses, consider buying an income self-funded pension plan. With it, you’ll get a guaranteed monthly payment. With some plans those payments will come every month for the rest of your life, and with others you’ll get them for a specified number of years.

There are three types of income self-funded pension plans, and each has a different payout setup. Immediate plans begin to make payments right away. There are variable and fixed immediate plans, and the degree of risk is different for each, with variable plans having more risk, but also carrying the possibility of a higher monthly payout, depending on market performance. Fixed plans pay the same amount every month for the duration of the plan.

With a deferred income self-funded pension plan, you won’t get payments immediately. That deferment could potentially mean that your payments will be larger once they do begin.

If you want more security in retirement, and it’s likely most of us fit into that category, then a self-funded pension plan is worth considering. If you currently have a Health Savings Account (HSA), you already know the benefits of tax-deferred savings, so you’ll likely immediately understand the benefits of a self-funded pension plan once you start getting educated about them.