Estate planning and retirement planning go hand in hand. After all, the more wealth you set aside for retirement, the more you’ll have left to provide for your family after your death. One tough decision that retirees face is choosing the best option for receiving payouts from a pension plan.
Lump sum vs. annuity
Some defined benefit pension plans give retirees a choice between receiving payouts in the form of a lump sum or an annuity. If you have other sources of retirement income, taking a lump sum distribution allows you to spend the money as you please. Plus, if you invest the funds wisely, you may be able to achieve better returns than those provided by an annuity.
On the other hand, if you’re concerned about the risks associated with investing your pension benefits, an annuity offers guaranteed income for life. (Bear in mind that guarantees are subject to the claims-paying ability of the issuing company.)
Single-life vs. joint-life payouts
For annuities, most pension plans require you to choose between a single-life or joint-life payout. A single-life annuity provides the plan participant with monthly benefits for life. The joint and survivor option provides a smaller monthly benefit, but the payments continue over the joint lifetimes of both spouses.
Deciding between the two monthly options requires some educated guesswork. You’ll need to consider several factors — including your and your spouse’s actuarial life expectancies as well as factors that may affect your actual life expectancies, such as current health conditions and family medical histories.
If you need help choosing the right pension payout for your situation, please contact us. We’d be happy to assist you in the process of making this important decision that will impact on both your retirement income needs and your estate planning goals.