6 Tips To Review Before Electing Your Pension Option

Posted By: Jeremy Reif
Sat, Jan 23, 2021

  1. What are your daily, monthly or annual expenses? 

These can be broken down into two different categories and more importantly create a list or at the very minimum write down the totals for each category.

  1.   Fixed expenses (ex. Utilities, food)

A1.  Will your fixed expenses change once you retire? 

              (ex. Pay off debt, sell a rental)

  1.   Discretionary expenditures (ex. Vacations/traveling, cable, internet)

B1.   Will your discretionary expenditures change once you retire?

              (ex. travel more frequently, grandchildren, snow bird)

  1. What are your income sources? 

Put together a list of your income sources

  1. Social Security (What age will you elect your SS benefis?)
  2. Portfolio income – (Will you take income from your 401(k), IRA, Roth IRA, Simple IRA, 403(b) etc.

B1.    How long will this portfolio be able to support the amount needed?

  1. Pension (s)
  2. Rent (s)
  3. Wage (s) – will you continue to work part time or full time to support your lifestyle?

  1. Now that points 1 & 2 are figured out, it is time to understand the options available for your pension plan.
  1. This starts by getting the pension plan document (typical options listed below)

  A1. Lump sum

              If this option is elected, does this change how you protect your spouse

                   or your heirs?  You will then be responsible to make your funds last

              throughout your retirement.  (strongly encourage you to seek financial

              advice from a professional)

            A2.  Partial lump sum

            A3.  Joint and survivor (100%, 75%, 50% etc)

                   What is your family status?  Would your spouse be able to support their

                   desired lifestyle if they were not able to continue the pension income?

            A4.  Single life

                   Pays as long as you are alive but stops payment once you pass away.

            A5.  Life with period certain (ex. 5yrs, 10yrs, 15yrs) 

                   Continues payments to your heirs for remainder years certain elected.

                   Ex. You elected 5 years certain and you pass away after receiving 1 year

                   worth of payments.  Your heirs would continue to get payments for 4

                   more years.

  1. Understanding your family goals
  1. Surviving spouse

A1.  Can your spouse survive with or without the pension?  Where would they

       get their income moving forward?  What are expectations of the family?

A2.  You might hear of taking the higher payment and use insurance to cover

        for your spouse or heirs.  Be optimistically cautious with this strategy as

        it often does not work out when you crunch the numbers.

  1. Kids

B1.  Do you plan to leave an inheritance to your heirs?  Is there a plan to make

       this come to fruition at the end of the day?

  1. Emergencies

C1.  If you elected a monthly pension option, you need to plan for emergencies

        that are not covered by your monthly income.  (ex. Major expenses –

        like a new roof)

C2.  Emergency reserves may look different than your peers based on your

       circumstances.  This could be your retirement accounts, joint accounts

       or even credit cards.

  1. Life expectancy
  1. Do you know your family history?   (health issues that might affect your longevity?)
  2. Do you personally have any current health issues?   (We can use and research your health information for medically written payout options.  What this means is to explore the potential of an increased pension payout option based on actuarial tables of shorter life expectancies).
  3. Do you know the family history for your spouse?
  4. What is your wealth transfer plans, if any?

  1. No longer working for a former employer
  1. Check the plan document and get informed.

A1.  Check how your plan accumulates.  Does it accumulate by years of

       service only?  Or are there other factors?

A2.  If you quit your job, does your pension stop increasing? Often former   

       employees do not realize how their pension accumulates and it is possible

       that it could be to your advantage to review this earlier than later.  For

       some pensions it makes sense to move (rollover to another retirement

       account) or elect the income payment now rather than lose out on inflation.

       It is always best to talk to a financial professional.

      A3.  Is your pension frozen or not keeping up with inflation?  Does the

             company want out of the pension or future payment obligations

             and now offering a special buyout offer?

How Are You Saving For Retirement?  Regardless of what type of retirement accounts you have in your name, the important thing is that you are saving as much as possible. If you want to know if you’re on track toward your goals or need help strategizing for retirement, I am here to help and point you in the right direction. I’d love to offer you a no-strings-attached call to see if I can help you. Schedule a call and meet me virtually to get started!


About Jeremy Reif, CRPS®
Jeremy Reif is an independent financial advisor with more than a decade of experience in the financial services industry. He is also the owner of Point Wealth, LLC, an independent financial planning and investment management firm. With advanced credentials and training in retirement planning and financial planning, Jeremy focuses on helping individuals and families pursue financial independence. Regardless of the services he’s providing, he focuses on talking openly about financial planning, the industry, common questions about retirement planning, and more to help everyday investors gain more confidence in their financial opportunities. Based in Wausau, Wisconsin, Jeremy serves clients throughout the state and can work virtually with clients throughout the country. To learn more, visit http://pointwealthmanagement.com and connect with Jeremy on LinkedIn.
Advisory services are offered through Point Wealth, LLC, an Investment Advisor in the State of WI. Whenever you invest, you are at risk of loss of principal as the market fluctuates. Past performance is not indicative of future results. Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.
Point Wealth, LLC is not affiliated with or endorsed by the Social Security Administration or any government agency.
Stay In The Loop With Point Wealth!