Is a Pension an Annuity?
Folks call J.G. Wentworth every day seeking lump sums of cash; many are approaching retirement and confused about the difference between a pension and an annuity. Today’s blog will clear up the confusion surrounding these two terms, defining each one and discussing both their similarities and differences.
A pension is a fixed sum that is paid regularly to a person following their retirement. As explained in our previous blog Six Investing Options to Save For Retirement, pensions occur when an employee (usually with employer support) sets aside part of his or her income over the period of his or her employment. This money is then invested on the employee’s behalf, and upon retirement, a portion of it is distributed to the employee in a series of payments paid out over time.
An annuity is a financial product that is designed to accept upfront money from an individual (or from an entity representing an individual) and then pay out a stream of smaller payments to this individual at a later date. Although annuities can be purchased for different reasons, they are primarily used to secure a steady cash flow for a person during their retirement years.
Similarities and differences between pensions and annuities
As you can see, both pensions and annuities primarily deal with helping a person receive a steady cash flow during their retirement years. The goal is to replace the retired individual’s work income with these regular payments, so he or she can live with some degree of comfort. So, many retirees turn to pensions and annuities for the financial security and peace of mind that these regular payments can provide.
That said, there are definitely differences between the two. Pension funds come with the support of one’s employer, who usually makes financial contributions to the fund, as well as manages its growth. In just about all cases, one can only receive a pension after working at a certain job over a lengthy period of time. Annuities, on the other hand, are usually purchased by an individual, who gives a large sum of money up front to the annuity company, in exchange for periodic payments that are promised to the annuitant at a later date.
J.G. Wentworth: one of the leading annuity payment purchasing companies in the country
J.G. Wentworth is among the nationwide leaders in offering lump sums of cash for the purchase of future annuity payments. However, we do not purchase future payment streams from pensions. If you are currently receiving money from an annuity, or scheduled to receive money from an annuity at some point in the future, we encourage you to contact our company if you’re looking to get that money into your hands sooner. Unfortunately, if you need cash now, but the money you are scheduled to receive comes from a pension, our company cannot offer you a lump sum of cash for these payments.
We hope the above has helped you understand the difference between annuities and pensions, and clarified our company’s position on the purchase of annuity vs. pension payments. As always, if you have an annuity, are approaching retirement, and would like to talk to J.G. Wentworth about your specific financial situation, you can call our representatives anytime at 877-227-4713.
Nothing above is meant to provide financial, legal or tax advice. You should meet with appropriate professionals for such services.