How do you know which options to choose and what to consider when reviewing your Pension Plan?
When having these conversations with clients and prospects getting ready to retire, its often we find that all the emotion and thoughts that go into making the decision to leave the workforce can cloud one’s ability to analyze the different options available with regards to their employer’s Pension Plan.
In today’s blog, we want to provide a few tips based on the discussions we’ve had with our clients. We are going to go through these tips in 5 simple steps in hopes they can help you!
Step One- Obtain all documentation provided by your employer, regarding the plan and your options.
Here you may find details such as eligibility, payout options, Spousal Benefits, and Healthcare Benefits, among other things. We find the more information, the better, as you can consider all the potential pros and cons associated with your available options.
Step Two- Understand what your needs are in retirement.
This could include:
-What your expenses are (both essential and discretionary)
-Where your different sources of income will come from and at what times they will be available, whether it be the pension, Social Security, income from Investment Accounts (both retirement oriented and non-retirement oriented) and how the order in which you take them could impact your lifestyle.
Step Three- Tax Plan
Understand how certain decisions could impact your expenses with relation to tax consequences (ie: earned income vs. capital gains tax, or how Medicare premiums could increase based on income, etc.)
Step Four- Survivor Benefits
Have a full understanding of Survivor Benefits should you choose to remain in the pension and not take a lump sum. You may find that your plan allows for multiple different payout options which each have different Survivor Benefits associated with them. In reviewing Survivor Benefits, it could also be helpful to conduct an Insurance Needs Analysis. We sometimes see retirees opt to take the single-life option from their pension, therefore decreasing their Survivor Benefit, and using a portion of the excess pension cashflow to buy Life Insurance, naming their Survivor as the Beneficiary. This strategy is known as Pension Maximization.
Step Five- Understand your distribution methods
If your plan does allow you to take a Lump Sum distribution, understand all the potential pros and cons associated with that decision as well. Running through multiple financial planning scenarios could be helpful in trying to understand which choice is best for you.
The Final Word:
Everyone’s situation is different, so it is important to take your time and plan in advance when it comes to these pivotal life moments.
If you enjoy working with numbers, you might be happy to see that many of these different scenarios around pensions are quantifiable. You can look at multiple options and come to an understanding, based on numbers, how certain outcomes could look. Things that might not be so easy to come to a conclusion on are more based on personal preference. Working with your team of trusted professionals when making these decisions is something we find can be very helpful as managing all the variables yourself can become time-consuming and even overwhelming.
We hope you enjoyed and have a great day!
- The Rockline Team
Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Plainview, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses.
The opinions expressed and material provided are for general information, and should not be considered a solicitation of financial advice or for the purchase or sale of any security.
Real-life and fictional examples given in this video should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.