Options To Consider When Receiving Your Pension

Most employers have moved away from the traditional pension plan in favor of employee-self-funded 401K’s, 403B’s, and other retirement plans. If you’re one of the lucky few still holding a pension, here are a few tips to help you decide on the best payout option for you.

Pension payouts usually begin at age 65 and are based on a percentage of your final average pay at the company. There will usually be a few different payout options with varying benefits. Some of the more typical payout options are as follows:

1.       Lump Sum: Receive a lumpsum value.

2.       Life Annuity: Receive a fixed payment amount every month for the remainder of your life.

3.       50% Joint and Survivor Annuity (typical for married people): Receive a fixed payment amount for the remainder of your life, and after you pass, your spouse receives 50% each month for the remainder of their life.

4.       10 or 15-Year Period Certain and Life: Receive a fixed payment amount every month for the remainder of your life. If you pass away within the specified period, your beneficiary receives 100% of the monthly payment until the end of the specified period.

Choosing the best option for your lifestyle and future requires important number crunching. You’ll have to decide if you would rather have a lump sum (say $200,000 now) or an annuity ($1,000 every month for life). Since this decision is irrevocable, it is imperative to have a solid plan for the lump sum so you do not outlive your money.