So you are closing in on retirement, and you are faced with a difficult choice regarding your defined-benefit pension plan: Should you accept the traditional, lifetime monthly annuity payments or take the lump sum distribution?
What is a Lifetime Pension Annuity Offer?
A lifetime pension annuity offer is where your cooperative offers you a flat monthly payment based on a percentage of your income history for your entire life or your spouse's life or a certain time period or a combination of any of these. See my blog on annuity payment options here.
What is a Lump Sum Offer?
The lump sum distribution is a one-time payment from your pension administrator (NRECA). You gain access to a large sum of money by taking a lump sum payment which you can then spend or invest as you see fit.
The thing I like to emphasize about the lump sum offer to potential clients is the flexibility that comes with taking this option. A 30 year retirement is more than likely to face many surprises with which a flat monthly payment isn't going to help. The lump sum option, invested properly, offers flexibility to meet those surprises and can be invested to provide regular income also.
Which Should You Choose?
Do you want to leave something to loved ones upon your death? Do you want to create a legacy for your family? Would you like to leave money to a church or charity? Once you and your spouse die, the pension annuity payments might stop.
On the other hand, with a lump sum distribution, you could name a beneficiary to receive the money after you and your spouse are gone.
The key word is control. With the lump sum option you have complete control of your money for the rest of your life and possibly your heirs lives, too. You control your monthly income, you control your taxes, you control your investments and you control the retirement that you worked so hard to get to.
What We Believe?
In life we often worry about many decisions from day to day. Most of those decisions honestly don't matter all that much because if we make the wrong decision we can usually correct it. It might take some money and some work but most bad decisions are fixable.
However, that's not the case in this matter. Once you make the choice it's final!!! You can't undo this decision. You can't change your mind.
There are cases where the monthly pension offer is the better choice and we can show you how to determine this. In most every situation we see, the lump sum is the better offer and it's usually not even close. We would be happy to look at these options with you and determine which option actually helps you achieve the retirement you want.
You Need A Plan
If you're still in the accumulation phase (pre-retirement) we can help you figure out where you need to go and how to get there. If you are retired or nearing retirement, we can plan an income which will outpace inflation and possibly leave a legacy to your family. The consultation is free and without obligation. Contact us today to schedule your retirement review.
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Thanks for reading!
80/20 Financial Services is an independent Registered Investment Advisory Firm. Our focus is working with retirees, and we specialize in working with retirees who are approaching or going through the retirement transition. We are located in Ozark, MO but we have the ability to work with clients throughout the United States. Contact us today for help with your retirement needs.