Tuesday, September 11, 2012

Lump Sum Pension – Is it right for me?


For the small percentage of folks out there that are still offered a pension by your employer (≈20%), lump sum vs. lifetime income requires a full analysis and should be done thoughtfully and thoroughly.

It still amazes me that people will come into our office to have a plan done to see which option to choose, and they follow up with, “I’m retiring next week or at the end of the month.” This is hardly enough time to fully analyze a situation to determine the best way to go.

If you go to a financial person and they are willing to answer that question at the first meeting, don’t walk but run out the door and get another opinion.

Why? Because you only get to make this decision once, and if you make the wrong decision it could cost you hundreds of thousands of dollars over your lifetime. There are a number of considerations to be made before you can make an educated decision.

Here are a few of them:

1. How is your health (and spouse’s)?

2. What benefits will your spouse be eligible for in the future?

3. What are your income needs?

4. Do you have aging parents / a child that needs ongoing financial support?

5. Have you discussed long-term care and health insurance costs in retirement?

6. Do you have other investments that offer future inflation protection?

7. Does the pension offer a cost of living adjustment?

8. Can your spouse live comfortably off of the reduced pension amount at the first death?

9. Do you carry life insurance? How much is it for and how long will it last?

These are just a few of the questions we explore before making a recommendation on what is best for each situation.

For those cost conscience folks out there who don’t want to spend the money on a financial plan, think again. It could be the best investment you can make to secure your financial future.

If you have specific questions, feel free to email me at kathy@fishandassociates.com.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates