Understanding Your Pension Payout Options
Although pensions are becoming less common as an employer benefit, those who are fortunate to have one should make sure to thoroughly understand all the options before deciding how to receive their pension payment. Amy Shepard, CFP, RMA with Sensible Money, explains.
Key Takeaways
- Single life pension pays the highest monthly amount but stops when you die—best for single people or married couples who each have separate pensions, but risky if a surviving spouse depends on that income.
- Single life with period certain (e.g., 10-year) guarantees a minimum number of payments even if you die early, providing peace of mind and potential inheritance for heirs at the cost of slightly lower monthly payments.
- Joint and survivor options (50% or 100%) ensure income continues to a surviving spouse but result in lower monthly payments—compare scenarios where the retiree lives long versus dies first to determine the right survivor percentage.
- Avoid taking the lump sum unless you already have enough pension and Social Security income to cover all expenses, or you have multiple pensions and can take some as lump sum while others stay as monthly income streams.
- Public pension holders must account for Government Pension Offset (GPO) or Windfall Elimination Provision (WEP) when calculating Social Security benefits, as these can significantly reduce your expected Social Security income—verify with Social Security directly.
Understanding Your Pension Payout Options: Although pensions are becoming less common as an employer benefit, those who are fortunate to have one should make sure to thoroughly understand all the options before deciding how to receive their pension payment. Amy Shepard, CFP, RMA with Sensible Money, explains. For more finStream videos featuring Amy Shepard, please click on this link: https://www.finstream.tv/featured/amy-shepard/
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