Leaving your job can be a difficult decision, especially when your retirement benefits are on the line. If you have a pension, you may be wondering what happens if you quit before you’re eligible to retire. Here’s a quick overview of how quitting can impact your pension.
Can I take my pension with me if I quit?
In most cases, no. Traditional pensions are tied to long-term employment with a company. If you leave before retirement age, you usually have to forfeit the pension benefits you’ve earned so far.
There are a few exceptions. For example, some pensions may allow you to keep your benefits if:
- You’ve worked a minimum number of years (e.g. 5 years)
- You’ve reached a certain age (e.g. 55)
- You move to a new job with the same employer
Check your summary plan description to see if any provisions like this apply to your pension.
What happens to the contributions I’ve made?
With traditional pensions, employees don’t make contributions; the employer funds the entire pension. So if you quit, you won’t get back any money you paid in.
If you have a hybrid pension like a cash balance plan, you may be able to get back the contributions you made. But you’ll lose out on any contributions the employer made on your behalf.
Can I collect pension benefits early?
No, quitting your job won’t allow you to tap into your pension benefits ahead of schedule. Pension payments typically can’t start until you reach the plan’s normal retirement age, usually somewhere between 55 and 65.
Some plans do allow early retirement as early as age 55. But this is still later than when most people quit working. And taking your pension early usually results in a reduced benefit amount.
What options do I have if I leave?
If you quit before retiring and can’t take your pension with you, you have a couple options:
- Leave your benefits: You can choose to keep your pension where it is until retirement age. At that point, you’ll be eligible to start collecting whatever payments you earned.
- Take a lump sum payout: Some plans let you take a lump sum payout when you separate from service. This gives you access to the benefits sooner but removes the predictability of lifelong payments.
- Roll over to an IRA: You may be able to roll over the lump sum to an IRA and avoid taxes. From there, you can start drawing on the funds whenever you want.
How does leaving affect my pension amount?
If you don’t work until normal retirement age, your pension payments will likely be smaller than if you had stayed. Here are some of the factors that play a role:
- You’ll have fewer years of service. This shortens the time you accrued benefits.
- You’ll miss out on raises that would’ve increased your pay used to calculate benefits.
- You won’t get credit for additional years you would’ve worked until normal retirement age.
It’s impossible to predict exactly how much leaving will reduce your future pension. But in general, you can expect significantly lower payments than if you stuck it out until retirement.
Should I stay solely for my pension?
Quitting before you can collect pension benefits often means leaving a lot of money on the table. However, you may have good reasons for moving on like a new career opportunity, family needs, health issues, or simply wanting a change.
Only you can decide if staying solely for the pension is the right choice. Know it’s not your only source of retirement income. You can build other savings through IRAs and 401(k)s that go with you when you change jobs.
Tips for leaving without losing benefits
If you’re thinking of leaving your job soon, consider these tips to preserve more of your hard-earned pension:
- Check if you’re eligible for early retirement, even if it cuts your benefit.
- Find out if you can transfer your pension to a new employer.
- Work part-time if allowed until you hit key milestones to earn full benefits.
- Contribute aggressively to other retirement plans like a 401(k) to compensate.
Key Takeaways
- Quitting your job before retirement age means forfeiting at least part of your promised pension benefits.
- You won’t get back any contributions the employer made, but may recover your own contributions.
- Leaving early results in smaller benefit payments in retirement.
- Explore all options to reduce pension losses before giving your notice.
Conclusion
Pensions reward long tenure, so leaving a job early can be costly. Take time to understand what happens to your pension so you can make an informed decision. While you’ll lose out on some benefits, you may have other good reasons to move on or ways to supplement your retirement income.