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Here are a few other concerns:. Do you have an emergency fund built into your assets with other accounts or resources? Look at the lump-sum offer in the context of your entire financial picture. Of course, the longer you live, the more valuable the monthly pension is worth.
On the flip side, a lump sum is fully in your control should you want to include that amount in your estate planning. Is your pension benefit based on your life only or are there provisions for a surviving spouse?
Consider the full spectrum of the plan. Whether to take a lump-sum buyout of your pension or the guaranteed monthly benefit is a highly individual decision. Beyond the math, think of other variables that may impact your choice and give them weight, too. Read the original AJC article here. Disclosure: This information is provided to you as a resource for informational purposes only. It is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors.
Past performance is not indicative of future results. Investing involves risk including the possible loss of principal. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. The information contained in this piece is not considered investment advice or recommendation or an endorsement of any particular security. Further, the mention of any specific security is solely provided as an example for informational purposes only and should not be construed as a recommendation to buy or sell.
Posted on November 12, November 12, Posted on November 8, November 9, Posted on November 4, November 4, Posted on November 3, November 3, Posted on November 2, November 3, Posted on October 25, November 3, Posted on October 19, November 3, Forgot Password. Less common than they once were, pension plans promise monthly income at retirement based on a formula that usually includes your years of service with an employer. For this reason, they are also known as defined benefit plans to distinguish them from defined contribution plans.
With the latter, benefits are based on the money available in your retirement account from contributions and investment income. This makes the point at which your benefits will expire under a pension plan a little easier to predict. However, it will still depend on the benefit payout you choose, and some are more open-ended than others. The Employee Retirement Income Security Act of requires pension plans to follow a "vesting" schedule.
Vesting is simply the portion of your promised retirement benefit that you own. The two options are percent vesting after five years of service, with none before that, or vesting that begins after at least three years of service, with percent vesting after seven years. Employers can choose more liberal schedules. Once you are vested in part of your benefit, you are entitled to it even if you are no longer covered by the plan.
However, you will be required to wait until you reach your earliest retirement date under the plan to collect the money. The single life annuity option provides you with the highest monthly pension benefit. If your plan promises a certain percentage of your highest five years of salary times your years of service, that's what you will receive.
A single life annuity expires immediately upon your death. This means if you are married, your surviving spouse could experience a significant reduction in income if you were receiving a high benefit.
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