Understanding Your Pension Options

Pensions have been making headlines lately, prompting many Americans to take a closer look at the details and security of their pension plans. One of the biggest and most complex decisions you may face is whether to take a lump sum payout. At Iowa Retirement Benefits & Solutions, we understand that your pension and retirement goals are unique. Our team is here to help you navigate the pros and cons of your lump sum options to ensure you make the best decision for your financial future.

Full Lump Sum Option

The most common pension choice available is the Full Lump Sum Option, where you receive a one-time payment that consists of your entire pension balance.

Pros:

• Full control over your money
• Ability to invest or use funds as needed
• Potential for higher returns if well-managed

Cons:

• Possible large tax bill if not rolled over into an IRA
• Risk of outliving your savings

Partial Lump Sum + Monthly Payments

illustrated sign against blue sky points in various directions related to retirement income and spending options

Another common option is a combination of a Partial Lump Sum and Monthly Payments. In this scenario, you take part of your pension as a lump sum while the remainder is converted into a lifetime annuity.

Pros:

• Provides some immediate cash for expenses
• Guarantees ongoing income for life

Cons:

• Results in smaller monthly pension payments
• Potential tax consequences on the lump sum portion (if not done properly)

Annuity Payments Only (Leaving It in the Pension)

With this option, your pension pays out a guaranteed amount for life, or for the joint life of you and your spouse.

Pros:

• No risk of mismanaging funds
• Guaranteed lifetime income
• May include cost-of-living adjustments

Cons:

• No access to a lump sum
• If you pass away early, benefits may not transfer to heirs

Rolling Over into an IRA

If your plan allows, you may be able to roll your lump sum into an IRA or another retirement account, allowing you to defer taxes.

Pros:

• Avoids immediate taxation
• Provides more investment options
• Allows for flexible withdrawals over time

Cons:

• Market risk with investments

Additional Considerations

Taxes are a major factor to consider, as lump sum distributions are typically taxed as income unless rolled over into an IRA. Additionally, longevity plays a crucial role in determining whether an annuity or lump sum is the better option. If you are married, survivor benefits should also be factored into your decision. Lastly, unexpected medical and long-term care costs could impact your choice, making a guaranteed income stream more appealing in some cases.

Choosing the right pension payout option requires careful planning to avoid costly mistakes. At Iowa Retirement Benefits & Solutions, we are dedicated to guiding you through these decisions and ensuring your investment strategy remains on track.

If you’re ready to take control of your financial future and plan for a secure retirement, we’re here to help. Schedule your free and confidential strategy discussion today. You can also email us at info@iowaretirementsolutions.com or call us at 319-423-3332.

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Investment advisory services are offered through Fusion Capital Management, an SEC registered investment advisor. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration is not an endorsement of the firm by the commission and does not mean that the advisor has attained a specific level of skill or ability. All investment strategies have the potential for profit or loss.