Written by Stina Antonopoulos

Founder of Roots & Wealth | Retirement Income Planning | Author of What If? (Coming August 2026)

For generations, pensions were the foundation of retirement.

Today, fewer employers offer traditional pensions, leaving many workers to create their own retirement income through savings, investments, and insurance products.

This has led many retirees to ask:

"What's the difference between a pension and an annuity?"

While both can provide retirement income, they work differently and serve different purposes within a retirement plan.

What Is a Pension?

A pension is an employer-sponsored retirement plan that promises eligible employees a monthly benefit after retirement.

The amount is typically based on factors such as:

• Years of service

• Salary history

• Employer plan provisions

• Retirement age

Traditional pensions are often referred to as defined benefit plans because the benefit is determined by a formula rather than investment performance.

Many government employees, teachers, military personnel, and some union workers still receive pensions, although they are much less common in the private sector.

What Is an Annuity?

An annuity is a contract with an insurance company designed to help provide retirement income.

Depending on the type of annuity, it may offer:

• Guaranteed lifetime income

• Income for a specific number of years

• Tax-deferred growth

• Protection from certain market losses (depending on the product)

• Flexible payout options

Unlike pensions, annuities are generally purchased by individuals rather than provided by employers.

Pension vs. Annuity: A Side-by-Side Comparison

Pension: Typically provided by an employer / Annuity: Purchased by an individual

Pension: Monthly income based on employer plan / Annuity: Income based on the contract you choose

Pension: Employer funds the benefit / Annuity: You fund the contract with your own assets

Pension: May include survivor benefits / Annuity: May include optional death benefit or income features, depending on the contract

Pension: Becoming less common in the private sector / Annuity: Widely available through insurance companies

Both can provide dependable retirement income, but they are created in different ways.

Why Many Retirees Consider Annuities

Because traditional pensions have become less common, many retirees look for ways to create a personal retirement paycheck.

For some people, annuities can help provide predictable income that complements other retirement resources such as:

• Social Security

• Investment accounts

• IRAs

• 401(k)s

• Dividend income

• Rental income

Rather than replacing investments, an annuity may be one part of a broader retirement income strategy.

Which Offers More Flexibility?

Generally speaking:

Pensions

• Limited control over benefit design

• Employer determines plan provisions

• Fewer customization options

Annuities

• Multiple contract types

• Various income options

• Different beneficiary choices

• Optional features depending on the product

The level of flexibility depends on the specific annuity contract and the features selected.

Which One Carries More Risk?

The risks are different.

Pension Risks

• Some private pensions may face funding challenges.

• Benefits may depend on employer plan rules and, in certain situations, protections such as those provided by the Pension Benefit Guaranty Corporation (PBGC).

Annuity Considerations

• Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

• Terms vary by contract.

• Some contracts may limit access to funds for a period of time.

Understanding these differences is important before making any retirement income decision.

Can You Have Both?

Absolutely.

Many retirees receive income from multiple sources, including:

• Social Security

• Pension benefits

• Investment portfolios

• Retirement accounts

• Annuities

The goal is often to create a reliable monthly income while maintaining flexibility for unexpected expenses and future needs.

Questions to Ask Before Choosing an Income Strategy

If you're evaluating retirement income options, consider:

• How much guaranteed monthly income do I already have?

• What are my essential monthly expenses?

• How much market risk am I comfortable with?

• Do I want income that lasts for life?

• Will my spouse need survivor income?

• How important is leaving assets to my heirs?

There isn't a one-size-fits-all answer.

The right strategy depends on your personal goals, financial situation, and retirement timeline.

Frequently Asked Questions

Is an annuity the same as a pension?

No.

A pension is typically an employer-sponsored defined benefit plan, while an annuity is an insurance contract purchased by an individual or funded with personal retirement assets.

Can an annuity replace a pension?

For some people, an annuity may help provide dependable retirement income similar to the role a pension once played. However, whether it's appropriate depends on individual goals, financial needs, and the specific annuity selected.

Are pensions guaranteed?

Many pensions provide dependable benefits, but the level of protection depends on the employer, the type of pension plan, and applicable laws. Some private pensions have protections through the PBGC, while government pensions operate under different rules.

Are annuity payments guaranteed?

Certain annuity contracts offer guarantees that are backed by the financial strength and claims-paying ability of the issuing insurance company. Guarantees vary by contract, so it's important to understand the terms before purchasing.

The Bottom Line

Pensions and annuities share a common purpose: helping provide retirement income.

The key difference is how that income is created.

Pensions are generally earned through employment and funded by an employer. Annuities are purchased individually and can be tailored to fit a variety of retirement income goals.

For many retirees, the question isn't whether a pension or an annuity is "better." It's how different income sources can work together to create a retirement strategy that provides confidence, flexibility, and long-term financial security.

How Roots & Wealth Group Can Help

At Roots & Wealth Group, we believe retirement planning starts with understanding your income—not just your investments.

Whether you already have a pension, are considering an annuity, or are looking for ways to create dependable retirement income, we can help you evaluate how different income sources fit into your overall retirement plan.

Our goal is to help you build a retirement strategy that reflects your lifestyle, priorities, and long-term financial goals.