Are you one of the dwindling number of American workers with access to an employer pension? If so, you may have a head start on retirement planning. But you also face different decisions than those without a pension. What sort of decisions must you make, and how can you make the right ones? Here's what you need to know.
1. Monthly Benefits or Lump Sum
Most pensions offer the chance to take your accumulated savings out of the plan when you retire and get a lump sum instead. Savvy investors or those with less well-performing pension plans may do better investing on their own. However, if your life expectancy is long and you don't have a large retirement buffer, you may want to make monthly payments for life.
2. Single Benefits or Spousal Benefits
If you can choose to share some of your pension checks with a surviving spouse, should you? This generally depends on the spouse's retirement options. A stay-at-home spouse with little other savings may need additional benefits. However, if your spouse isn't dependent on your income, you both may do better with higher monthly payments for you.
3. Non-Pension Retirement Savings
While many Americans struggle to contribute to just one type of retirement account, you have the option to contribute to both a pension and individual plans. Calculate your expected pension payments to determine whether or not these will cover retirement expenses. Many do not, and you should supplement your financial plan with other means.
4. Lifetime Payments or Period Payments
Modern pensions sometimes offer an option to receive benefits for a fixed period of time, including to the surviving spouse. This could be an ideal option for those who plan to retire early and have to fill in the gap before tapping other retirement funds. However, as with a lump sum, smaller checks guaranteed for life could be more valuable to many.
5. Purchasing Service Credit
Because pensions are usually based on the amount of time put in by the employer, they often include the option to purchase service credits for higher benefits. Should you purchase credits? This may be a good choice for someone who wants to retire early and collect larger checks or who joined the company later in life. However, if you have other retirement benefits, the money to purchase credits might be better used elsewhere.
Clearly, a worker with a pension plan has plenty of decisions to make. The best place to start is to learn more about calculating the effects of various options. Do this by consulting with a retirement financial planner in your state. With their expertise, you can choose the right path for a great retirement.