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Considering Pension Payout Options

Retirement is looming in the near future. Your company that you have been loyal to for the last 15 years has given you an option. Either you can take a one-time lump sum payout of your pension, or it have it distributed to you in monthly installments over your lifetime. This can be a decision that will affect you and your family. It should be an informed decision, and you should discuss with a financial advisor.

According to the poll in 2013 by the Employee Benefit Research Institute, more than a third of retirees covered by a pension plan took a lump sum payment when they left or retired from their job. Many of them were uninformed about what the lump sum would do for them or how it is calculated. These employees potentially faced a reduction in their retirement by accepting the lump-sum offer from their employers.

Just like most things, the government has an office that reviews and regulates such matters. The Government Accountability Office (GAO) reviewed information from about 248,000 pension plans in 2012. They found that the packets were unclear and lacked critical information about the lump-sum payment. The packets lacked not only information about how the pension was calculated, but about protections that would be lost if the lump sum is taken, such as federal pension insurance that protects part of their benefits if the employer files for bankruptcy.

The Consumer Financial Protection Bureau recently published a guide to help consumers weigh the risks to taking a lump sum over the monthly payouts. The report determined if you are in good health and your family members tend to live long lives, the monthly payouts would be a better option because it reduces the risk of running out of money later in life. This option helps retirees manage money throughout their retirement years.

They recommend that the ultimately the depending factor is the individual, age, health, family history, and money-management skills. Not every person can fit into the same scenario, so they also give a time when the lump sum would be appropriate. They suggest taking the lump sum if you are in poor health, or have an illness that is expected to shorten your life span. Also if you have a substantial nest egg or other income source.

The biggest part of making your decision is to educate yourself. Do your research and ask questions.

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