“Retirement income planning” is lingo used in the financial industry to help clients determine their retirement possibilities. It is uttered by most advisors/brokers/insurance salesmen as a general offering, even when very few actually have the needed knowledge. Unfortunately, I’ve found that retirement income planning is rarely done properly across the broad industry, with more bad advice given than good.
My article last month on the gamble related to “When Is the Best Age to Start Claiming Social Security?” provides some big-picture insights to help educate and assist clients actually dealing with Social Security elections for retirement. This month, I wanted to bring up another gamble: pension plan annuity elections.
Pensions come in varying options, which are mostly at the employer’s discretion in terms of what to offer within their company’s original plan document. Some of the most common options are: lump sum, single-life annuity, 100% joint survivor, 50% joint survivor and/or options with pop-up provisions. A client’s choice as to which option to take is dependent on a multitude of factors such as: future risk, future income needs, age of retirement, client life expectancy, joint-spouse life expectancy, estate planning objectives, current life insurance coverage, insurability, long-term care assumptions,and retirement income lifestyle needs – just to name a few.
For purposes of this article, I’m using a generic example, based on an undisclosed pension plan from a Fortune 500 company:
In this example, the company doesn’t offer a lump-sum option, but does offer various other options for both survivorship and non-survivorship benefits. If the company offered a lump-sum distribution option, the amounts would have been somewhere in the $400k to $500k range. Regardless of the details for each…
Andy graduated from the University of Alabama-Birmingham with a B.S. degree in Accounting. He is a Registered Investment Advisor Representative of Money Management Services, Inc and holds the designations of CPA (Certified Public Accountant), AIF® (Accredited Investment Fiduciary), CTS™ (Certified Tax Specialist), and WMS (Wealth Management Specialist). As an advisor, Andrew specializes in comprehensive financial planning, estate tax planning, personal taxation planning, retirement income distribution planning, wealth accumulation, personalized portfolio management, and fiduciary investment management services.