Taking Care of Mom and Dad: Pensions Conclusion

Defined benefit plans -- the things people usually think of when they hear the word pension -- are the most predictable and reliable form of private-sector old age income benefits. ERISA, the federal law that controls pension benefits, sets strict rules for how defined benefits are administered.

For this reason, in part, not many companies offer traditional pensions anymore. This is probably bad news for you...but, the odds are, if your parents worked for any significant part of their lives they may have some form of defined benefits due them.

The challenge for many children helping their parents is to sort out their parents' work histories and find out exactly what benefits are due and from which companies they are due. This can involve some detailed detective work.

However -- as with Social Security -- some people rely too heavily on the pension benefits from the companies where they worked.

A defined benefits plan should be just one of several sources of retirement income on which an older person can rely. Your parents may not even have a pension plan ready to pay them when they are ready to retire, in which case they'll have to turn to other forms of cash, such as investments, 401(k) plans, sale of real estate or other assets, Social Security, immediate annuities and part-time work.

It's good to look at Social Security retirement benefits, pension income and immediate annuities as similar to owning fixed-income securities (like corporate or government) bonds. All three provide a predictable stream of income.

And, for your parents' financial well-being, fixed income investments are the best way to assure a steady cash flow...and a decent quality of retirement life.