To reduce costs, some companies are offering lump sum pension buyouts to thousands of their salaried retirees. Retirees are stressed and overwhelmed with the daunting decision of determining whether to take the lump sum or to continue receiving the monthly pension payment. Many of the retirees worked for many years and remained loyal to the companies because of the long-term pensions offered.
Unlike the monthly pension payment, retirees fear the lump sum may not sustain them for the rest of their lives. The most important question retirees needs to ask themselves is whether they would prefer to have ownership of their own finances or continue to have a third-party company manage them.
At Betcher Financial Group, our specialty is helping retirees continue to make their hard earned money work for them. We tailor plans to meet the specific needs of our clients, and our team of dedicated professionals strives to uphold the highest standards of service to help ensure families are protected and people enjoy a comfortable retirement. For the past 15 years, Betcher Financial Group has been helping retirees obtain their retirement and estate planning goals.
If you or anyone you know is facing a pension buyout, we would like to help. We understand it is overwhelming and extremely stressful making decisions that affect your financial future. If you would like additional information regarding pension buyouts or if you know someone that is facing this dilemma, please feel free to contact us for a free analysis.
Lump Sum Pension Buyouts 101
When companies need to save money, they will often try to reduce or eliminate their pension liability by either shifting pension liabilities to annuities administered by a third-party company or by offering a lump sum equivalent to their pension amount. For retirees, deciding to continue receiving a monthly payment or accept a lump sum can cause a lot of anxiety. Here are frequently asked questions about lump sum pension buyouts to help better inform you.
How do the companies calculate the lump sum?
Using a retiree’s monthly pension and life expectancy, the lump sum payment is calculated using a formula from the federal government. Because of the varying inputs, each lump sum offered may be different. A few factors possibly considered are age, years retired, interest rates or years with the company.
Should I accept the buyout or continue receiving monthly payments?
Making this decision depends upon many different variables. Each retiree’s situation is different; therefore, the decision should not be made without speaking to a financial advisor. By doing this, retirees will be able to see the full picture of their finances. Consulting a financial advisor will aid in making an informed decision and also provide a plan to better position the retiree’s financial future.
What happens to the money when I die?
If you are a married and you had elected the joint and survivor option, your spouse will receive about 65 % of your monthly payment. When your spouse dies, the payment ends. If you are single, however, upon death, the monthly pension payment cannot go to a beneficiary.
If you had chosen to receive the lump sum and have established paper writers for hire an estate plan, there is much more leeway. Upon death, the balance of your lump sum goes to your chosen beneficiaries. This allows future generations to continue using a retirees’ hard earned money for years to come.
What is the first thing I should do if I accept the lump sum?
One of the biggest concerns for retirees is whether the lump sum will sustain them for the rest of their lives. Once the lump sum payment is accepted, it is important to get that money working for you. Your first step should be to initially move the lump sum into an IRA to avoid taxes on the amount.