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It There A Right Time to Start Taking My Pension?

Pension plansSelfishly, most employers want to reduce their long-term liability exposure; given that desire, pension plans have become increasingly rare.

It used to be common to get a pension when you worked for a company for 20 or 30 years, then retired with a gold watch and a complete package of retirement benefits; time times have changed, however.  Pensions have been replaced in large part by 401(k)s or other employer-sponsored savings plans. Those fortunate enough to still have a pension will make it a large part of their retirement plan. If you have a pension, you’ll have to make some decisions when you are ready to retire.

The first choice is when to begin receiving pension benefits. Some plans offer payout options that like Social Security benefits. You can begin receiving benefits at 62, but you’ll get a smaller amount. If you wait until you’re 65, you’ll receive a bigger payout.

A critical decision is how you will receive your benefit payment. Many pension plans have a lump sum option that lets you cash out of the plan. You’ll also most likely have a few options for monthly payments. The lump sum payout avoids the possibility that your employer may default on your pension.

Most people who take a lump sum roll over the proceeds into an IRA, so they can control the tax consequences of the distribution. If you don’t take a lump sum, or if your plan doesn’t allow for one, you’ll need to decide how to receive your monthly payments. There is typically an option of receiving payments for the rest of your life (a single life annuity) or selecting from a variety of survivor options (joint and survivor annuity) that allow for your beneficiary to continue to receive payments after your death.

If you choose payments for your life only, your monthly income will be higher. The survivorship options result in a reduced payment. If you are married, the IRS requires that the benefit from a qualified retirement plan be paid out as a survivorship option, unless both spouses designate a different form of payment. The best choice for you will depend on your personal circumstances.

When trying to decide, weigh factors such as your age, your spouse’s age, each of your life expectancies, your health, your health history, your spouse’s health and health history, along with the other sources of retirement income that might be available to you or your spouse, after one of you passes. It’s also important to consider whether you have life insurance, the impact the death of one spouse will have on your combined income and the impact on your combined expenses.

If you are lucky enough to have a pension, make sure to get this right. You won’t get a second chance, once you start getting your benefits.

Reference: Investopedia (July 6, 2018) “Choosing How and When to Receive Pension Benefits”

 

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The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.