Everything about retirement changes if you’re one of the lucky few who have a pension in America — here’s why

Core Insights - Only 14% of U.S. workers were covered by a defined benefit pension plan as of March 2025, with these plans being more prevalent among government employees [1] - Approximately 86% of state and local public sector workers have access to a pension, and 56% of retirees reported receiving pension income in 2024 [2][3] Tax Implications - Pension income is treated as ordinary taxable income, which can increase tax liability and affect Social Security benefits taxation [3] - Pension income contributes to modified adjusted gross income (MAGI), potentially leading to higher Medicare premiums due to IRMAA surcharges; only 15 states fully exempt pension income from state taxation [4] Payment Options - Employer-sponsored pension plans often provide a choice between a lump sum payment or lifetime monthly payments (annuity), with the annuity option offering guaranteed monthly income and long-term financial stability [5][6]