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How to Manage Pension Funds When You Retire

Paul Haarman

By Paul Haarman

Pension is a corporate retirement benefit offered by your employer. You may not be sure how to use it once you retire from working. Paul Haarman says a corporate or government pension policy can come with many options or none at all. Since every plan is unique, one needs to understand how to receive your money and when. Knowing the format of receipt is extremely crucial, especially if you have a defined benefit plan. You can get guaranteed payments after retiring based on your service duration and compensation package in the company. Here is a sneak peek into various modes to obtain pension funds.

Private sector pension plans

Paul Haarman points out that you can have more choices if you work in a private company. You can speak to Human Resources or the administration, whoever handles pension plans. Go through the plan summary describing the accessibility of funds. You must know when and how you can get the amount and whether there is a possibility of getting a full and final lump sum with options to transfer that into an IRA. Usually, 401(k) schemes allow this. You may not find this with a pension. Only monthly benefits can be applicable here. 

Furthermore, the Pension Benefit Guaranty Corporation (PBGC) looks after the private sector pension funds. If a business or plan loses money, this body can distribute the payment up to a specific limit. Please check your pension plan report annually. It will keep you updated about the health of your funds in the account. If you see the amount is less than what you expected, you can verify whether PBGC can do something about it.

Lump-sum VS monthly payouts

It would be best to decide whether you want to receive the full amount at once or over a lifetime. Paul Haarman suggests assessing your situation can give you a fair idea of this. Typically, you have to choose between lump sum and monthly payments. Lump-sum withdrawals can make you immediately cash-rich. But it will be your responsibility to save it for your whole life from there.  

According to Paul Haarman, some people feel comfortable with monthly payouts. They expect to live longer and don’t want to enter the cycle of investment and risks of losses. You can also depend on this option if you want a steady cash flow after your retirement. With monthly distributions, you can choose from a single life annuity and a joint-and-survivor annuity. The first option pays a higher amount, but it stops after the pensioner’s death. For this option, you need to have formal consent from your spouse as mandated by laws. The joint-life annuities offer low monthly payments. Still, the benefit will continue even after the pensioner’s death. 

There can be more benefits that you can give to your spouse rather than 50%. You can increase it from 75% to 100% of what you take. You should check the details before taking any such step and analyze if it is useful.

Like these, there are many ways to receive your pension funds.