By Mike Gibbons, RICP®
If you’re one of the fortunate workers who will receive a pension in retirement, it’s important to know there are options in how you receive the money. Learn the different ways you can take pension payments throughout your retirement, as well as the possible benefits of opting for a lump-sum payment.
Pension Payout Options
If you choose steady payouts from a pension, you have several options on how to receive the money. The best option for you will depend on factors, including your other sources of retirement income, whether you are married, or wish to have the pension continue to provide income to heirs after your death.
Single-life annuity: Under this option, you’ll receive the largest possible monthly payments. However, the payments will end after your death, making it a poor choice if you have a spouse who would need the income after you pass away or have any health issues.
Joint and survivor annuity: This option provides you with pension income while you are alive, then continues the payments to a spouse or other beneficiary after you pass away. You can often choose how much income your surviving spouse would receive: 50 percent, 75 percent, or 100 percent of the base benefit. Calculate what the income needs of your surviving spouse will be when considering a joint and survivor annuity.
Period certain and life annuity: This pension will pay a beneficiary for a set period after you die. The initial payout is usually larger than what you would receive with a joint and survivor annuity because the payout period is limited. Consider this option if you’re single but would like heirs to receive part of your pension payment if you die young.
Options For Lump-Sum Distributions
Instead of regular payments, you can also opt to (if the plan permits) receive all your pension benefits at once in a lump-sum payment. Though you will forfeit regular income in retirement, there are some situations where taking a lump-sum distribution may make sense. Here are a few considerations:
You can roll the funds into an individual retirement account (IRA). If you’re comfortable handling your own portfolio or having a professional assist with managing the funds, taking a lump sum and choosing your investment mix may be a smart choice. IRAs also provide more options in withdrawing money or passing it along to heirs than most pensions offer, especially if you’re not married.
You can use the funds to purchase an annuity, in which case an insurance company pays you a regular income in exchange for depositing a sum of money with them up front. Many annuities provide payment options that rise over time to keep pace with inflation, which pensions typically do not.
If you’re in poor health or have another source of retirement income to rely on, taking a lump sum can allow you to enjoy your pension funds today.
Building Your Retirement Income Plan
Considering your pension options is just one piece in your retirement income planning, which should include a plan for Social Security benefits and the savings in any other retirement accounts. An experienced financial advisor can help you incorporate all the parts into a plan that works for you. We at Gibbons Financial Group would love to be your guide. Call 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. Request a free retirement income analysis here.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.