How to plan for retiring with a pension and Social Security

Mapping out financial stability in retirement can be stressful—and a lot of work. That’s particularly true if you plan on retiring with a pension and Social Security. As you plan savings and develop strategies for retirement, you’ll probably have a flood of questions, including: Can you collect pension and Social Security at the same time?

Determining how pensions interact with Social Security—and how they can work together to maximize retirement income—is a common challenge. According to the U.S. Bureau of Labor Statistics, 86% of government employees and 15% of private sector workers have access to defined-benefit pensions.

Whether you’re years from leaving the workforce or actively pursuing an exit strategy, understanding these benefits could mean the difference between financial security and worrying about running out of money in retirement.

Pension and Social Security basics: Understanding the difference

If you’re retiring with a pension and Social Security, you should understand the essentials of both options.

Pension plans: The employer’s promise

A defined-benefit pension promises to pay qualified employees a specific amount of money every month of their post-retirement lives. Think of it as a retirement paycheck. While you’re working, your employer sets aside money from all participants and invests it. This pension fund helps ensure the company can pay participants’ future benefits, regardless of how the market performs.

The monthly defined-benefit pension payment amount is guaranteed and determined by a formula, typically based on salary history and years of service. For example, a plan might pay 2% of your average salary for your highest-paid three years, multiplied by the number of years you worked there. So, if you worked for 30 years at the organization, and your highest three-year average salary was $80,000, you’d take 2% of $80,000, which equals $1,600. Multiply that by 30 for the years you worked at the company, and you’ll receive $48,000 per year from your pension in retirement.

Although most private sector companies no longer offer defined-benefit pensions, many of the largest U.S. employers continue to manage legacy pensions alongside other retirement offerings like 401(k) plans, according to the Bureau of Labor Services. However, defined-benefit pensions remain common among public-service jobs and still cover tens of millions of those workers, according to the Congressional Research Service.

Social Security: A retirement safety net

Social Security is the federal government program funded through payroll taxes that provides a basic level of retirement income. According to the Social Security Administration (SSA), nearly 9 in 10 people age 65 and older receive these benefits, making it a cornerstone of retirement planning for most Americans.

But Social Security works differently than pensions. Social Security benefits are calculated based on your lifetime earnings. Rather than focusing on the three highest-earning years, as pensions often do, the SSA reviews your 35 highest-earning years (adjusted for inflation) before age 62. It then averages those and applies a formula that favors lower-income workers.

For example, in 2025, you would receive 90% of your first $1,226 in average monthly Social Security payments. Above that, you’d be eligible for just 32% of earnings over $1,226 and just 15% of anything over $7,391.

You can adjust this amount based on when you decide to retire and start claiming Social Security benefits. For example, collecting retirement payments early at age 62—when technically eligible—reduces your monthly check by up to 30%, according to the SSA. Waiting until age 70 increases it by 8% per year beyond your full retirement age (age 67 for those born in 1960 or later).

A deeper look at how benefits are calculated

Those retiring with a pension and Social Security benefits will need to do some research and basic math to determine how much they can receive from each.

Factors for calculating pension benefits

For those wondering how to plan for retirement with a pension, three variables determine what pension benefits will look like.

1. Years of participation. The U.S. Department of Labor sets specific guidelines for pension participation:

• Most employers require employees to be at least 21 years old.
• Employees typically need at least one year of service before joining the plan.
• Longer participation generally means higher benefits, and each additional year of participation typically increases the benefit amount.
• Companies often set vesting periods (usually three to seven years) before an employee can qualify for full benefits.
• Some plans offer early retirement options with reduced benefits.

2. Average salary calculations. Your final pension amount typically depends on your earnings history.

• Most plans use one of the following methods:
  • Final average salary (typically based on the last three to five years)
  • Highest consecutive years of earnings
  • Career average earnings
• There may, however, be some caveats to consider:
  • Overtime and bonuses might not count toward salary equations.
  • Some plans cap salaries used for calculations.
  • Cost-of-living adjustments may vary by plan.

3. Covered vs. non-covered pension status. The Social Security Fairness Act was signed into law on January 5, 2025. Prior to this law, those receiving pensions from a public-service job that didn’t withhold Social Security (otherwise referred to as “non-covered” pensions) would see reduced Social Security benefits. The Act eliminates this reduction and ends the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) formulas. Still, this distinction is worth noting.

With covered pensions, more common with private-sector jobs:

• Employers pay Social Security taxes on your wages.
• They allow for straightforward retirement planning.

With non-covered pensions, more common with state and local government jobs:

• Employers pay no Social Security taxes on wages.
• They require careful planning for benefit optimization.

For confirmation on whether your benefits will change, contact your local Social Security office or visit the SSA website for more information.

Social Security requirements and calculations

If you’re not certain whether you qualify for Social Security income, it’s easy to find out. According to the SSA, the following criteria will impact your eligibility and the amount of your benefits:

• You’ll need to have earned at least 40 credits. Generally, you can earn up to four credits per year, so many people will qualify after 10 years of working.
• Currently—as of 2025—each credit requires $1,810 in earnings.
• You must be at least 62 years old.
• Benefits are based on a participant’s highest 35 years of earnings.
• Earnings are adjusted for inflation (quantified by the consumer price index).
• Working longer can help you balance out lower-earning years and increase your Social Security income.

Note: Individuals with disabilities might qualify with fewer credits, and benefits can begin at any age, assuming the SSA’s strict definition of disability applies. The number of earned credits required to qualify for benefits depends on the age at which the person begins living with a disability.

Winning strategies for maximizing your retirement income

Once you understand which factors will impact your eligibility for retiring with a pension and Social Security, you’ll need to plan how to get the most retirement income from both.

What steps can you take to ensure your Social Security and pension income when it’s time to stop working? Here are some essential tips:

Smart planning strategies

Consider the following to develop a plan:

• Work with a financial advisor or accountant who’s familiar with both systems to help you prepare to receive and balance income from both benefits. Those professionals can also help you plan for tax implications from both income sources.
• Start building a retirement budget—and adapt it as needed. Plenty of tools are available to show you how to estimate your retirement budget. You can also use the SSA’s online calculators to determine, well in advance, how much you can expect to earn.
• Talk to your company’s human resources department or plan provider to understand your pension coverage status.
• Conduct research to help you determine how marital status affects income from both benefits.

Timing your benefits

When it comes to maximizing your Social Security and pension income, timing is everything. Taking these steps can help you earn more:

• Delay Social Security to age 70, if possible. Doing so will increase benefits by 8% annually once you’ve reached full retirement age (age 67 for most) and by 5% each year between the ages of 62 and 67.
• Evaluate what happens to your benefits payouts if you choose partial retirement. For some people, working part time can allow them to stay active—and delay earning full income from both benefits.
• Consider how your Social Security and pension income align with spousal benefits and timing.
• Plan for healthcare coverage gaps.

Saving and investment tactics

You can make several proactive moves to access the most from Social Security and pension income—and supplement both benefits. For example, one simple tactic is to direct bonuses and raises to retirement savings whenever possible. You should also take advantage of your employer’s pension catch-up contributions when eligible, as the IRS outlines.

But you can also broaden your retirement portfolio so you’re not relying exclusively on Social Security and pension income.

• Consider other retirement vehicles like an IRA or a 401(k) or 403(b) account, all of which offer tax advantages. For instance, contributing to a traditional 401(k) or traditional IRA allows for tax-deferred growth, while a Roth 401(k) or Roth IRA offers tax-free withdrawals in retirement, provided you are at least 59 1/2 years old and have had the account for at least 5 years.
• If you prefer more conservative but guaranteed growth, you can open a certificate of deposit, or CD, and explore CD laddering options to access those funds at different times without incurring penalties for early withdrawals.
• Additionally, you can explore tax-advantaged savings through IRA CDs (CDs held within an IRA for fixed growth) and IRA Savings Accounts (offering more flexibility while still benefiting from retirement tax advantages).
• Take steps to build dedicated and accessible emergency funds so you won’t need to take money from Social Security or pension income when you encounter financial surprises during retirement.

Creating a comprehensive retirement strategy

If you’re retiring with a pension and Social Security, you can usually collect both benefits—but the key is understanding how they work together in your specific situation. If you’re wondering, “How much should I save for retirement with a pension?” factors like pension coverage, benefit timing, and additional savings options all play crucial roles in creating a secure retirement income stream.

By working with a financial professional to create a personalized plan, you can maximize both benefits in ways that meet your unique circumstances and strengthen your retirement strategy. Remember: The goal isn’t just to collect benefits but to create a sustainable, comfortable retirement income.

Opening a Discover®IRA Savings Account can complement your pension and Social Security benefits—and help secure your financial future.

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The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover or its affiliates.