Make Smart Decisions with Your Pension Plan

February 11, 2012

by John Bearss

Most Defined Pension Plans give you a choice of how you can take your payment when you retire. The question that comes up the most is: “Should I choose a single life annuity payout from my pension or a joint and survivor annuity payout, which will make payments to my spouse when I die?”

The answer to that dilemma really depends on your situation.

If you’re not married, the single life annuity is clearly the best choice. You’ll receive the maximum payout from your pension during your life, and all benefits will cease when you die.

This option may even make sense if you’re married assuming that you have other ways to take care of your surviving spouse, such as investments, retirement plan assets or life insurance.

One common strategy is to choose the single life annuity payment, which is higher than the joint life payment, and buy life insurance to protect your spouse with a portion of the difference in income. Using this strategy, you may maximize your pension benefits while you are alive, and your spouse will receive insurance proceeds when you die that may be more valuable than what he or she would get under the joint and survivor annuity option.

But you may be better off choosing the joint and survivor annuity if your assets are insufficient to meet your surviving spouse’s needs or if you cannot obtain the life insurance coverage you need because of medical reasons or it is too expensive. Another reason to choose the joint and survivor annuity is if the difference between the higher-paying single life annuity and the joint and survivor annuity payment gap is too small.

Also you may want to consider the joint and survivor annuity to guarantee an income as long as you or your spouse are alive. This may also enable your surviving spouse to continue to receive medical coverage from your former employer after your death, if the plan allows.

The point is this, before you make the decision on your payout, make sure you talk with a financial professional that can help you determine what is best for your situation. Thank you for joining me this week for your retirement minute.

Always do your own due diligence and consult a trusted financial professional before making any investing or financial decisions. John Bearss is a registered representative of and offers securities through SICOR Securities, Inc., Member FINRA, MSRB, SIPC, 6500 Poe Avenue, Suite 105, Dayton, OH 45414 | (937) 890.3101. Neither SICOR Securities, Inc., Lifetime Decisions Management nor their representatives provide legal or tax advice. Please consult your CPA or qualified tax advisor before making any decisions. Lifetime Decisions Management, Inc. and SICOR Securities, Inc. are not affiliated.

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