Which pension option should i choose

Pension Plan Retirement Options Choosing between pension options can be a difficult task. Choosing an option that guarantees your spouse pension benefits after your death means extra security but also lower monthly benefits. Once you take the single payment, you are no longer dependent on how successful your old employer is. They could go bankrupt the day after, and you would not be affected. If you take the monthly payment option, then the company will keep control of how the money is invested; they are responsible for paying you the monthly benefit, which you cannot change; you may or may not be able to leave something to the kids or grandkids; and if the company falls on hard times, your benefit may be in jeopardy.

The biggest benefit of the single, lump-sum payment option is that you retain control of the money. You can invest it, keep up with inflation, grow it, change how much you withdraw, and leave some for the kids or grandkids.

The biggest drawback of the single, lump-sum payment option is that you might not invest it well. One big benefit of the monthly payment option is the knowledge that unless the company goes under, you should receive income and cashflow consistently for a certain number of years. The biggest drawbacks of the monthly payment option are that you cannot change how much you receive each month even if inflation drives up living costs; you may lose your benefit if the company goes under; and you may not be able to leave anything for the kids or grandkids.

While the single, lump-sum pension payment plan option is fairly straight forward, the monthly payment option can actually contain several sub-options; they are simply variations on the theme. If you select this sub-option, the company agrees to pay you a monthly benefit for as long as you live.

As long as you are alive, the company agrees to pay you. If you select this sub-option, you tell the company which other life you want included usually a spouse.

The company agrees to pay you a monthly benefit for as long as you OR your spouse is alive. Whichever of you dies first, the survivor will still receive a benefit payment. But the payment is often smaller for the survivor. If you select this sub-option, the company agrees to pay you a monthly benefit for however many years you select.

If you choose a joint life pension option with a guarantee period and you die within that period, your full basic lifetime pension will continue to be paid to your spouse for the remainder of the guarantee period. After the guarantee period, your spouse's pension payment will be reduced to the joint life percentage you chose for example, 60 per cent in the case of a joint life 60 per cent option, for their lifetime.

If you chose a joint life pension with a guarantee period and you die after the guarantee period, your spouse will receive a continuing pension equivalent to the joint life percentage you chose for example, 60 per cent in the case of a joint life 60 per cent option. A pension with no guarantee period will result in higher monthly pension payments than a pension with a guarantee period.

A shorter guarantee period will also result in higher monthly payments. You cannot change your decision after 60 days from the date your pension is granted, and depending on your situation, you may not be able to change it at all.

If you have a former spouse, you may be required to provide some of your pension to them under the terms of a separation agreement or court order. We recommend you speak with an independent financial adviser before making your pension option decision. Once you have made your choice and your pension is granted, you have 60 days to change your option this may not apply if you have a spouse.

In addition, if she is married, her spouse will not receive a survivor benefit. This means that if Sara passes away after one year, the payments would continue to a spouse or beneficiary through year 10 as measured from the first payment. But before doing so, she should consider her and her spouse's life expectancy and compare the lump sum with the cumulative payouts she would receive with different annuities.

If you have an above-average life expectancy, you could receive considerably less in cumulative payouts over the years if you take a lump-sum payment. If you want to guarantee that your spouse has income upon your death, you may not want to take the traditional single-life option. However, if there is a monthly employee investment cost associated with using a pension plan to provide an annuity benefit to her spouse, you may choose to get life insurance quotes to compare the monthly cost of using the pension plan versus the cost of buying your own outside life insurance.

Although you may be healthy and insurable, buying outside life insurance involves more risk than pensions even if some cost savings can be achieved. The life insurance could be canceled as a result of non-payment.

When a person passes, the insurance needed by a spouse wouldn't be available. The insurance that is often built into a pension plan can offer greater security when considering risks like cognitive decline and illness. If you do look into life insurance, get life insurance quotes online, talk to a life insurance agent, or use the services of a fee-only life insurance agent or fee-only financial advisor.

If you work with an agent, remember that the agent may not provide an objective analysis. When deciding which pension payout option is best for you and your spouse, consider your life expectancy, potential beneficiaries and their life expectancies , and your income needs in retirement to determine whether an annuity or a lump-sum will better sustain your retirement. If you opt for an annuity, evaluate the pros and cons of a single-life versus a joint-and-survivor annuity.

The traditional single-life annuity won't provide benefits to a survivor, making it a poor choice if your goal is to provide income to your spouse after your death. However, a single-life period-certain annuity or a joint-and-survivor annuity can both result in income passing on to beneficiaries so that they have an income they can depend on in retirement. The Department of Veterans Affairs VA offers a pension for widows whose spouses served in the military.

However, the VA doesn't give a timeline for how soon you can expect to receive these benefits, except that claims are processed in the order the VA receives them. To expedite the process, you can use an intent to file form that essentially saves your place in line while you gather the evidence that you need to complete your application.

The primary difference between a pension plan and Social Security benefits is that pensions are employer-sponsored while Social Security is a government program.