Pension Annuity Advice
Pensions are becoming more and more rare, but if you have one, you should know how they work. Pensions are typically distributed using annuities. Annuities are insurance products that guarantee an income for life or for a set number of years. Before you retire, make sure you know all of your pension options.
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Options
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You generally have a few options when you retire with a pension. You can take your full pension payment. You can take a partial pension payment. Finally, you can take a lump sum payment.
Significance
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Your full pension payment means that you are taking the full amount of your pension. If you die prior to your spouse, your spouse receives nothing in terms of a beneficiary payment. A partial payment means you take a reduced payment and in return your spouse receives the difference between your full pension and the amount you chose to take. If you take a lump sum payment, you must invest the money yourself to secure your own retirement income.
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Benefit
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The benefit of a full pension payment is that you receive all of your pension. You don't have to worry about whether you will outlive your spouse. The benefit of a partial payment is that you are not disinheriting your spouse if you predecease her. The benefit of the lump-sum distribution is that you retain full control over your retirement savings with the opportunity to receive higher payments than the fixed pension amount if you are an experienced investor.
Disadvantage
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The disadvantage to taking your full pension payment is that you disinherit your spouse if you predecease him. The disadvantage of a partial payment is that if your spouse predeceases you, you have permanently lost part of your pension. You cannot reclaim the difference set aside for your spouse. The disadvantage to taking a lump-sum distribution is that the lump sum amount must be invested. If you are not an experienced investor, you could lose a significant portion of your retirement savings.
Considerations
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Before deciding on which pension option you should take, consult with your spouse. In some cases, like when you take your full pension, you must have your spouse sign a waiver. Also, consider taking a lump-sum amount and splitting the pension. Buy an annuity with part of the pension and invest part of the pension. This way, you won't disinherit your spouse, but you won't lose any of your pension by taking a reduced pension either.
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