Pensions are a blessing in retirement.
Does your employer provide a pension?
If yes, then you are among the few and fortunate.
Pensions used to be commonplace for employees who work 20 to 30 years or more with the same company.
According to a recent Investopedia article titled “Choosing How and When to Receive Pension Benefits,” this is no longer the case.
Employers have shifted to 401(k)s or other savings plans for retirement.
Consequently, this places much of the planning responsibility on the employee.
If you do have a pension plan, however, then you still have a few decisions to make.
What are they?
First, you will need to decide when you will begin taking pension benefits.
Not all plans have the same rules, but some have options similar to Social Security.
You can take benefits at 62 for a smaller amount than if you wait until you turn 65.
Another decision you may need to make is how you draw your pension.
Will you have a single payment in full satisfaction or will you elect to take a monthly payment.
Why might you take that lump sum?
This removes the possibility of your employer defaulting on your payout when you need it.
With a lump sum, many people roll the money into an IRA.
What is the benefit here?
It provides greater control over the tax consequences for distribution.
What are benefits to taking monthly payments?
You could choose to receive payments for the rest of your life as a single life annuity.
You could also select a survivor option.
With a joint and survivor annuity your spouse could receive payments after you pass away.
The choices you make will affect the amount received.
The survivorship option will reduce your monthly payment while you are alive, but the IRS will require married individuals to take the survivorship option.
Is there an exception?
Yes, both spouses must agree to the single life option and the non-employee spouse must waive the survivorship rights in writing.
What option is best?
This depends on your specific circumstances.
You should consider the respective ages of both you and your spouse, both of your life expectancies, both of your health histories and current health, and any other forms of retirement income you may have.
You will also need to determine how the death of either spouse will impact the other financially.
Considering these factors will help you make a wise decision regarding your pension payments.
Better yet, work with an experienced financial advisor who has seen it all and can advise you accordingly.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: Investopedia (July 6, 2018) “Choosing How and When to Receive Pension Benefits”
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