Retirement Planning Decisions
On your retirement day, your employer will likely ask you to provide written instructions on how to manage your employer-sponsored benefits. The critical point is that many of these decisions are irrevocable. This means that many of these decisions you will have to live with for the rest of your life.
So, the starting point for your vital retirement day decisions is to:
- First, know all of your available options. Obtain a copy of your current employer-sponsored benefits plan. This information may be available in either written or online format.
- Second, request sample copies of your retirement election forms so you can review them. You will also want to provide copies to the members of your professional financial team for review.
Most of your retirement day decisions will center around how to handle your company-funded retirement plans. Your choices will typically fall into one of two categories: lifetime annuity pension or lump sum, one-time buyout.
Annuity Pension
This refers to a lifetime monthly payment. The monthly amount you receive is generally not adjusted by inflation, which can become a challenge over time due to the cost of living changes if not properly planned for. Another consideration is that many annuity pensions offered via employers don’t offer a survivor’s benefit. This means that if you were to pass away shortly after your retirement income stream were to begin, your heirs would not be entitled to additional compensation from your retirement plan.
Once you begin to take ongoing payments from your retirement plan, you cannot switch to a lump sum option. Yet another risk of choosing this option is the potential financial failure of your former employer, which could cost you your entire retirement savings.
Lump-Sum (One-Time Buyout)
Many companies will offer retirees this option in addition to an annuity pension at retirement. This refers to a single payment made by the company in lieu of a lifetime monthly annuity payment. The amount of capital a retiree receives is determined by their life expectancy, amount invested and interest rate assumptions. If you take the lump sum option and invest wisely, your monthly income could be significantly higher than if you were to choose the annuity option. On the other hand, if you choose this pension option and make poor investment decisions, you stand to lose your entire retirement savings.
So, the decision is not as simple as whether an annuity pension option or lump sum pension option is best. In addition to choosing the type of payment option, you must also choose how you would like to receive the payments, single or joint for your spouse, or in the event of your death. When making these decisions, it is best to seek the professional advice of an investment advisor. After all, this is a permanent financial decision.
Planning for your retirement is one of the most important decisions that you will make. It takes careful and well thought out planning. Trippon Wealth Management has over 30 years of experience in helping families plan for retirement and maintain the comfortable lifestyle that they are used to. Some of America’s wealthiest families have trusted our financial planning and retirement planning experience to assist them in not only MAKING them money, but KEEPING the money they have earned.