Jul 8, 2008 12:34 pm US/Pacific
Pension Payments Or Lump Sum?
QUESTION: I have a traditional pension plan. When I retire, should
I take my pension in the form of a guaranteed monthly check for life or should I take my pension money up front and manage the funds myself?
ANSWER: There are many factors in making this decision. Some of the factors include the following:
1.) What is the amount of the monthly income relative to the lump sum you could be receiving? Here, we are trying to determine a "hurdle rate", or the rate of return that the lump sum must earn in order to generate a monthly income that would meet or exceed your monthly pension.
2.) Do you have beneficiaries that you would like to receive the money should something happen to you?
3.) If you choose any option other than the monthly, do you lose any benefits, including healthcare etc?
4.) What is your comfort level with managing the money yourself or having someone manage it for you?
5.) Does the monthly include a cost of living adjustment?
6.) Do you have a normal life expectancy, shorter than normal/longer than normal life expectancy based upon your genetics and/or lifestyle?
7.) Have you ever invested before? If yes, then What is your tolerance for seeing your account balance fluctuate on a daily/monthly/annual basis?
Answering these questions above will start you down the path to determine which of your pension options best suits you.
____________________ Money Matters is provided by:
David Schauer, CFA, MSFA, CFP®
Financial Planner
Hanson McClain
E-mail questions to moneymatters@kovr.com
(© MMVIII, CBS Broadcasting Inc. All Rights Reserved.)
