For those retirees fortunate enough to have a pension, making the decision about which pension option to take could be one of the largest financial decisions you will make. There are typically a few options that retirees can choose from. Single life pension, which will conclude when the retiree passes away; a reduced pension, which will continue payments after death (either for a spouse’s lifetime or a specific period of time), or a lump-sum pension, which is not always offered.
Here are some things to consider when deciding between these options:
Health: How is the health of the spouse moving into retirement? Pension plans, unlike insurance companies, don’t check out the health of each retiree. They base their calculations on averages. If a retiree is in great health and believes their life expectancy is good, then the single life expectancy may be a good option. However, if the retiree is in poor health, the option that provides the largest benefit to the survivor might be a better choice.
Income: Will the surviving spouse need the income if and when the retiree passes away? If the spouse is going to be dependent on the monthly income, then the options that allow the spouse to continue receiving income are going to be the better choices. If the surviving spouse won’t “need” to continue the income, another option might be better suitable.
Other factors: There are some situations where a spouse will only need the income for a period of time, not the remainder of their life. Let’s say there is a mortgage to pay off, but it could be paid off in five years. It might not be necessary to do a full survivor’s benefit, but instead have it pay for a certain number of years. This may or may not be an option provided by your company.
If you take a reduced pension in order to provide your surviving spouse with benefits after death, it is essentially a form of life insurance. For example, if a retiree has the option of receiving $1,200 per month without a survivor’s benefit, or receiving $1,000 per month with a survivor’s benefit, the $200 monthly difference is an insurance payment. Something you might take a look at is called a “pension max”. This is when you take the maximum, single life payout and then purchase live insurance from an insurance company. We are able to help you decide if doing a “pension max” is beneficial to you or not.
If you need help deciding what option may be best for your situation, please contact our financial planning experts online, call us at 952-657-7470 or email firstname.lastname@example.org to set up an appointment.
If you have any questions about Financial Advisor Minneapolis feel free to come pay us a visit!
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