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—HAVE A PENSION? BE SURE TO PLAN CAREFULLY

Posted by Admin Posted on Sept 23 2018

have a pension

 

The traditional pension may seem like a thing of the past. But many workers are still counting on payouts from one of these “defined benefit” plans in retirement. If you’re among this group, it’s important to start thinking now about how you’ll receive the money from your pension.

Making a choice

Some defined benefit plans give retirees a choice between receiving payouts in the form of a lump sum or an annuity. Taking a lump sum distribution allows you to invest the money as you please. Plus, if you manage and invest the funds wisely, you may be able to achieve better returns than those provided by an annuity.

On the other hand, if you’re concerned about the risks associated with investing your pension benefits (you could lose principal) — or don’t want the responsibility — an annuity offers guaranteed income for life. (Bear in mind that guarantees are subject to the claims-paying ability of the issuing company.)

Choosing yet again

If you choose to receive your pension benefits in the form of an annuity — or if your plan doesn’t offer a lump sum option — your plan likely will require you to choose between a single-life or joint-life annuity. A single-life annuity provides you with monthly benefits for life. The joint-life option (also referred to as “joint and survivor”) provides a smaller monthly benefit, but the payments continue over the joint lifetimes of both you and your spouse.

Deciding between the two annuity options requires some educated guesswork. To determine the option that will provide the greatest overall financial benefit, you’ll need to consider several factors — including your and your spouse’s actuarial life expectancies as well as factors that may affect your actual life expectancies, such as current health conditions and family medical histories.

You might choose the single-life option, for example, if you and your spouse have comparable life expectancies or if you expect to live longer. Under those circumstances, the higher monthly payment will maximize your overall benefits.

But there’s a risk, too: Because the payments will stop at your death, if you die prematurely and your spouse outlives you, the overall financial benefit may be smaller than if you’d chosen the joint-life option. The difference could be substantial if your spouse outlives you by many years.

Your overall financial situation — that is, your expenses and your other assets and income sources — also play a major role. Even if you expect a joint-life annuity to yield the greatest total benefit over time, you may want to consider a single-life annuity if you need additional liquidity in the short term.

Managing this asset

Although increasingly uncommon, these defined benefit plans can be a highly valuable asset. Please contact us for help managing yours appropriately.

If you have any questions regarding accounting, domestic taxation, international taxation, IRS representation, U.S. tax implications of Real Estate  transactions or financial statements, please give us a call at 305-274-5811.

Source: Thomson Reuters

The information provided on the LBCPA Blog is a community service for general information purposes only, and should not be used as a substitute for consultation with professional advisors who specialize in the topics covered. Please refer to your advisors for specific advice on these subjects. The information is not intended to be used, and it cannot be used, for the purposes of avoiding U.S. Federal and/or State tax laws or the tax laws of any foreign jurisdiction.

These blogs contain general information only and Lord Breakspeare Callaghan LLC or any of the other companies or firms presenting information are not providing accounting, business, financial, investment, legal, tax, or other professional advice or services. Lord Breakspeare Callaghan LLC or any of the other companies or firms contributing with articles shall not be responsible for any loss sustained by any person who relies on this information.

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