In the years leading up to the 2008 recession, the number one question posed by retirees was how to set up their finances in order to leave the most amount of money to their beneficiaries. Post-recession, retirement planning looks a little different. The question we hear most often nowadays is: “How can I make sure I don’t run out of money before I run out of breath?”
There are a few guaranteed income streams that most retirees will already have. The Social Security payments a retiree receives is one example. Payments are made as long as the individual is living. This fixed sum paid monthly is essentially an annuity.
Another type of annuity plan that some retirees will have is a pension plan. These plans were set up by their employer and the money set aside will be used to pay them into retirement. Pension payments also continue for as long as the individual lives, and in some cases, have the option to continue for the surviving spouse, (at a lower annual premium). Unfortunately, lifetime pensions are expensive to maintain, and over the years many companies have opted out of offering them to their employees.
Just last week, the Department of the Treasury rolled back guidance from 2015 that made it difficult for companies to dump their pension plans(1). Because of this new lenience, many companies are looking for ways to get rid of their pension offerings. The most popular choice is to offer employees a “pension buy-out.” These buy-outs are attractive at face-value, because it may be a very large number, but they are more beneficial to the employer than to the employee. These funds are often exhausted within five years, leaving the retiree scrambling to pay for the next few decades of their life unassisted.
Many of our clients have asked our advice on what to do if they are forced to take a pension buy-out by their employer. If you or a family member is in that situation, we advise setting up a visit with a retirement planning specialist to discuss the best options available to leverage those funds into guaranteed lifetime income, with no risk of loss.
Few things provide the kind of peace of mind that steady and guaranteed lifetime income offers. Most of the custom-tailored plans we create for our clients are set up in a way that ensures this peace of mind, with payments made as long as the individual is living, and if needed, with the option of continuing payments to a surviving spouse after their death. If you have received information from your employer about a pension buy-out, please contact one of our trusted retirement planning specialists to review the options available to you.
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1. DePillis, Lydia. “It Just Became Easier for Employers to Dump Retirees' Pensions.” CNN, Cable News Network, 20 Mar. 2019, www.cnn.com/2019/03/20/economy/lump-sum-pensions-retirement/index.html.
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