This week’s CBTV show is entitled, “How to Choose the Perfect Gift for Yourself this Holiday Season- Financial Security in Retirement.”
In this week’s financial tip, tool, or technique portion of the show I said, if you’re lucky enough to have an employer who still offers a defined benefit plan, you have several payout options available to you, come retirement time. Here are the 4 basic payout options to consider when creating an income stream from your pension in retirement:
1) Single Life Payout: This option pays out the biggest benefit, and is calculated based on a single life – yours, which means it ends at your death. No benefit is available for your surviving spouse, so this might be appropriate for a single retiree, or a couple who can cover the loss of income, if the spouse who is receiving the pension dies first.
2) Spousal Continuation Payout: Unlike the single life payout, these benefits continue on, if survived by a spouse. The downside, is the monthly benefit paid to the retired spouse is reduced vs. the single life payout. The upside, is the monthly payments are paid out for the life of the retiree and the surviving spouse, no matter how long each one lives.
3) Lump-Sum Distribution Payout: Some plans give you the option to take your pension funds in a lump sum, that can then be “rolled over” into an Individual Retirement Account (IRA). Taking the lump-sum distribution allows you to invest your money as you wish, and gives you many more options to choose from, which may give you even more income in retirement.
4) Pension Arbitrage Payout- If you’re married consider taking the higher “single life pension payout” and buying a life insurance policy on yourself. With this strategy, you will receive a higher monthly income during your lifetime, and your surviving spouse will receive a “lump sum” income tax-free benefit upon your death.
Knowing all your options before you structure your pension payout, can help you maximize your retirement income stream. I also recommend you consult with a qualified professional before making any decisions on this important election of benefits. Because once you decide which option to choose, you can never go back and change it!
I would like to hear from you this week on whether or not you have a Pension Plan distribution coming to you when you retire. Many employees do not have this valuable option available to them anymore. If you do, you’re one of the lucky ones.
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