Broker Check

Planning Discussions - Options for My Pension

Wealth & Pension Services Group
William Kring, CFP®, AIF - Chief Investment Officer

What are the Options for My Pension when I Retire?

You have been diligently saving for years, and after careful planning you are finally ready to realize your ultimate goal of retirement. However, depending on your pension plan type, you may be faced with a variety of ways to withdraw money from the account. Let’s discuss the three most common options for taking pension distributions, along with the pros and cons of each one.

Annuity Pension Payout Options from a Defined Benefit Plan

If you have been employed by a company that has a pension, also known as a defined benefit plan, you may qualify for a benefit based on factors such as tenure, salary, and retirement age. Typically, there are two general types of pension payments.

  • Single Life Annuity

  • Joint and Survivor Annuity

CalculatorThe single life annuity option will give you a predefined dollar amount for the rest of your life, usually paid on a monthly basis. Many times, this option comes with inflation protection to make sure that your income isn’t eroded over time by price increases. However, upon your death, the pension simply goes away, with no proceeds to your spouse or potential beneficiaries.

The joint and survivor pension option is typically available to those who are married. With this option, the payout will continue after the death of the primary beneficiary and will last until the passing of the spouse. Payments under the joint and survivor option may be lower than a single life option as the payor (employer or insurance company) is obligated to make payments based on the mortality of two individuals, as opposed to one.

Lump Sum Pension Distribution Option

Depending on the structure of your pension plan, you may be eligible to receive a lump sum payment instead of choosing payments over time. If you select this option, consider limiting your tax liability by rolling the entire amount into a self-directed IRA plan. There are several benefits for choosing this course of action.

  • You maintain control over the investments within the plan

  • You have the ability to provide a legacy to your heirs

  • You have flexibility with regards to the distribution amount

By utilizing an IRA as a vehicle to take your retirement distributions, you maintain quite a bit of flexibility, and can customize your savings and income plan to meet your needs. However, the positive features of a self-directed IRA aren’t without potential challenges. All retirement accounts need to be managed correctly so you limit your risk of running out of money. Unlike an annuity payout, there is no safety net.

The advisors at Wealth and Pension Services Group extensive experience helping clients select and manage the best options for their retirement income needs. Please contact us today to schedule a free consultation.