Should I Put My Pension Rollover in an Annuity?
A pension is a retirement plan set up by your employer. Many pensions are fully funded by employers for the benefit of the employee. When you retire, the employer's pension plan offers several payment options. However, you may take a lump-sum amount and invest the proceeds yourself. If you do, you might consider an annuity.
Other People Are Reading
-
Significance
-
An annuity is an insurance policy. The insurer converts your savings to monthly payments. You lose your savings, but gain a guarantee of monthly income for life or for a set period of time. You may also deposit your pension savings into a deferred annuity. A deferred annuity defers the guaranteed payment until you want to receive it. You may defer the payment indefinitely. However, the insurer also allows you to make withdrawals from your deferred annuity until or unless you want to convert the annuity to payments.
Benefit
-
Annuities are used in pensions to guarantee you a payment. So, using an annuity outside of the pension plan gives you the same kind of security that you get in the pension plan, except that you receive the payment from the insurance company directly. But taking a deferred annuity gives you much more control over your savings and allows you to access more than what the pension plan would give you in the event that you need a lump sum of money in an emergency.
-
Disadvantage
-
A deferred annuity comes with penalties and fees for terminating the contract prior to a certain date listed in the contract. But these penalties also apply if you make withdrawals in excess of a free withdrawal window. The free withdrawal amount is normally 10 percent, but may vary according to the insurance company. These fees and penalties generally extend for many years, meaning that you are limited in terms of liquidity in your contract.
Considerations
-
Consider using part of your pension savings in an annuity. If you need a guaranteed income, an annuity is a great option since you are assured that you won't run out of money. A deferred annuity, while limited in terms of liquidity, may still be a good option for some or all of your money if you want the benefit of being able to convert your savings later on in life.
-
