Retiring With Pension Distribution Decisions
Baby Boomers are starting to retire and many are faced with retirement pension options that will force them to make the biggest financial decision of their lives. Retirees must make decisions that are usually irrevocable that will affect their net disposal income during retirement and the future security of a surviving spouse.
Most employee pensions have three defined choices for distribution of an individual retirement savings benefit packet.
1. Single Life Annuity – provides maximum monthly payments for the single annuitant. Income benefits will cease upon the death of the annuitant with no spousal benefits or lump distribution. Some pension Single Life Annuities have a termination date upon reaching a certain age ie: 90, 95, up to 100. Most single life annuities will continue to pay for the life of the annuitant and pay the highest income payments for annuity pension.
2. Joint Life and Survivor Annuity- Provides payment until both beneficiaries die. Second beneficiary (survivor) is not required to be a spouse. The payment to a surviving spouse or survivor may be equal to the original payment or reduced at a percentage level to joint benefit. The Annuity payout will be determined by calculating the current age and gender of the recipient, age and gender of the survivor, and the responsibility of the contract, determining whether a full benefit, 70% of benefit, or 50% of the benefit etc. will be paid to the survivor. If there is a time certain period for the survivor to receive the benefits, this would limit payout to a defined period and help give the recipient a larger income stream during that period..
3. Lump Sum Distribution – receive a one time cash settlement to coincide with your level of service or contribution. The biggest negative is the need to hire a professional manager to oversee your interest if you are not skilled in this area. Most retiring beneficiaries are entering a period of life where they should become more risk adverse. Taking your retirement savings to the private market can produce a larger income stream with more favorable terms, however, it is very important that you review what options you currently have to what the possibilities are in the private market.
Most employee pensions have three defined choices for distribution of an individual retirement savings benefit packet.
1. Single Life Annuity – provides maximum monthly payments for the single annuitant. Income benefits will cease upon the death of the annuitant with no spousal benefits or lump distribution. Some pension Single Life Annuities have a termination date upon reaching a certain age ie: 90, 95, up to 100. Most single life annuities will continue to pay for the life of the annuitant and pay the highest income payments for annuity pension.
2. Joint Life and Survivor Annuity- Provides payment until both beneficiaries die. Second beneficiary (survivor) is not required to be a spouse. The payment to a surviving spouse or survivor may be equal to the original payment or reduced at a percentage level to joint benefit. The Annuity payout will be determined by calculating the current age and gender of the recipient, age and gender of the survivor, and the responsibility of the contract, determining whether a full benefit, 70% of benefit, or 50% of the benefit etc. will be paid to the survivor. If there is a time certain period for the survivor to receive the benefits, this would limit payout to a defined period and help give the recipient a larger income stream during that period..
3. Lump Sum Distribution – receive a one time cash settlement to coincide with your level of service or contribution. The biggest negative is the need to hire a professional manager to oversee your interest if you are not skilled in this area. Most retiring beneficiaries are entering a period of life where they should become more risk adverse. Taking your retirement savings to the private market can produce a larger income stream with more favorable terms, however, it is very important that you review what options you currently have to what the possibilities are in the private market.
