How Should I Take My Pension Plan Payments?

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A pension plan can be significant help in retirement.

Fewer employers offer pension plans than in the past.

The numbers of pension plans have fallen from 103,000 in 1975 to 46,700 in 2017.

While pensions have become less popular, 401(k) plans have grown from 207,700 in 1975 to 662,800 in 2017.

Although pension plans and 401(k)s are both for retirement, they are not governed by the same rules.

According to a recent CNBC article titled “Pandemic creates pension plan tension: Take the lump sum or trust lifetime payments,” a significant difference involves how the funds are disbursed.

Your pension could be threatened by the pandemic.
The pandemic may influence how you choose to take your pension.

For those with a pensions, the choice between taking a lifetime payments or a lump sum is significant.

The choice is further complicated by the pandemic.

Why?

Many businesses are struggling to survive.

Those who will retire need to consider whether their employer will be able to continue making pensions payments in the future.

Because “pension” usually implies a guaranteed income for life, the lifetime payment may be more appealing than taking a lump sum.

Although the Pensions Benefit Guaranty Corporation would intervene if the company were not able to meet its obligations, the full pension amount is not guaranteed.

If you choose to take the lump sum, the amount is often a reduced sum when compared to what would be dispersed in the lifetime payments.

The choice between lump sum and lifetime payments is also affected by interest rates.

When interest rates are a lower, the size of the lumps sum tends to be larger.

If interest rates are high, the size of the lump sum tends to be smaller.

If you select the pension plan lifetime payout, the amount you receive will be fixed.

In most instances, there is no cost of living adjustment.

You will also want to know whether your pension plan offers spousal benefits.

Not all offer this.

If they do, the payment is often reduced.

When you and your spouse die, the plan no longer makes payments.

If you take a lump sum, you may have money from the plan available to leave your heirs.

Regardless, if you have a pension plan, it plays a significant role in your retirement planning.

Discussing your options with an experience financial advisor who can help you determine what is best for your specific situation.

Reference: CNBC (June 8, 2020) “Pandemic creates pension plan tension: Take the lump sum or trust lifetime payments”