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Tips for Getting the Most out of Your Pension

Estate Planning Estate Planning for Gay Couples Investment Strategy Pension Retirement Planning April 25, 2017 Author: Woody Derricks

According to usa.gov, people live an average of twenty years after retirement. If you are planning to use a pension to fund a significant portion – if not all – of your retirement, are you confident that it is going to allow you to live the lifestyle you want? No one wants to outlive their retirement funding! By making some informed decisions, you can try to make the most out of those important retirement dollars.

Knowing Your Retirement Plan
There are two basic types of retirement plans:
1. A Defined Benefit Plan/Pension (DBP): The DBP is what many people think of when they hear the word, “pension.” Its income or benefits are pre-defined, and its terms specify options for receiving those benefits after separation from employment.
2. A Defined Contribution Plan (DCP): 401(k)s, 403(b)s, profit-sharing plans, and stock ownership plans are classified as DCPs. The money received from them is based on the investments the employee or employer contributed to the employee’s account, and the earnings or losses of those investments.

What is a Pension?
A pension is either a regular monthly payment, called an annuity, or a lump sum provided by your employer when you retire. The funds come from investments made during your employment, and the amount is based on factors such as your salary and the number of years worked at that employer.
Pensions – or DBPs – should not be confused with DCPs offered by employers. According to CNN, only 4% of private sector companies offer true pension plans; 14% offer a combination of DBPs and DCPs. DCPs are available through most employers, but the responsibility to fund those plans lies solely on the employee.

Making the Right Pension Decisions
If you have a DBP through your job, there are many factors you should consider before making any decisions.
Ask yourself:
1. Should you take the lump sum or a monthly annuity? Most pensions allow you to choose how you want to receive your funds. You can take a one-time lump sum, which is then typically rolled into an IRA, or you can receive flat monthly payments that are not usually tied to inflation.
• How healthy are you? If you suffer from a chronic disease that may impact your life expectancy, the lump sum may be a better choice for you; it would allow you to leave any unused portion to your heirs.
• Do you have other income sources? If you do not have any other major sources of income, you may want the stability of the monthly annuity. If you do, you could either take the lump sum for investment purposes or take the annuity as a low-risk diversification option.
• Can you do better investing your lump sum? Depending on how long you live after you retire, the lump sum may pay out more money than an annuity. The lump sum payout allows you to invest that money for potential gains – but it would also be at risk for possible losses.
• Is your employer at risk for filing bankruptcy? If you believe that your company is unstable, you may want to take the lump sum payout. While the Pension Benefit Guarantee Corporation may provide some continued income if an employer declares bankruptcy, these payments are often much less than the initial income that retired employees were receiving.
• What are your spending habits? Do you need access to larger amounts of cash occasionally? If so, you may need the flexibility of a lump sum payment. If not, can you trust yourself not to spend lump sum monies on frivolous items – like luxurious vacations? If you aren’t good at budgeting, then an annuity might be your best bet for a stable retirement.
2. If you choose an annuity, is the single-life annuity or the joint-and-survivor annuity right for you?
• What are the estimates for each annuity type? Ask someone in the HR department or look online to get estimates of each annuity type. A single-life annuity will only last as long as you are alive. The joint-and-survivor annuity will provide coverage for you and your spouse, even after you die. The payout is typically higher for single-life annuities, and some people use that extra cash to buy a life insurance policy on the annuity holder – ensuring the spouse has money if the annuity holder passes away. Life insurance can be expensive, though, especially as you age, and it can lapse if you miss payments.
• What is the age difference between you and your spouse? If you are much older than your spouse, then it may make more sense to take the joint-and-survivor annuity to guarantee him or her money after your death. If your spouse is much older than you, the single-life annuity may make more sense – giving you more money throughout the course of your life.

What is Best for You and Your Family?
As always, the best way to optimize your pension will depend on the needs of you and your family. If you have questions, you can consult a registered investment advisor and a tax professional; taxes play a significant role in your retirement funding, so it’s a good idea to keep tax implications in mind as you make decisions. With a little planning, you could turn your pension into a secure retirement future.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. This information is not intended to be a substitute for specific, individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.


As a Registered Investment Advisor (RIA), Partnership Wealth Management is committed to providing our clients with financial planning and wealth management services to help them make the most of their investments. At Partnership Wealth Management, we have a long history of working with the LGBT community. Among the many services we offer are financial planning and estate planning strategies for gay and lesbian couples. Financial planning is an important part of preparing for the future; contact us today to get started: www.partnershipwm.com.

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