Executive Summary

In 2017, we wrote an article for STA clients titled, “How Do You Maximize Your Pension Plan.” In that article we shared an in-depth white paper on many things to consider when optimizing your pension plan in coordination with your financial plan. Please refer to the article for a full discussion regarding:

  1. Choosing between a Pension Lump Sum vs. a Life Annuity
  2. Issues to consider between annuity options.
  3. Calculation tool to evaluate the investment risk if you chose to take the pension as a lump sum.

In this article, we will be sharing a new tool helping you optimize your pension decisions between the various annuity options. These decisions may be the most important retirement decision you make, so they need to be thought through as part of a comprehensive retirement and financial plan.

Background on Traditional Pension Plans

If you participate in a traditional pension plan at work (technically known as a qualified defined benefit plan), you will generally be entitled to receive monthly benefits from the plan after you retire. These benefits are usually based on your age at retirement, your years of service, and your average earnings with the company. The normal form of benefit is typically a single life annuity. The single life annuity that makes monthly payments to you while you’re alive and stops upon your death.

If you’re not married at retirement, federal law requires that your benefit be paid as a single life annuity, unless you elect a different payment option. If you are married when you retire, federal law requires that your benefit be paid as a qualified joint and survivor annuity (QJSA), unless you elect another payment option. The QJSA is an annuity that pays monthly benefits to you while you’re alive, and continues to pay at least 50 percent of your benefit to your spouse upon your death.

Depending on your plan’s provisions, you may have other payout options to choose from as well. Any optional form of benefit offered by your plan must be at least as valuable (actuarially speaking) as the single life annuity. You’ll want to select a payment option that will provide you with sufficient retirement income. In addition, if you’re married, you’ll want to be sure that your spouse will have sufficient income in the event that he or she outlives you.

How can you choose the most optimal Pension Annuity Payout Option?

In the above referenced white paper, we describe in detail each annuity payout option, but there are both qualitative and quantitative factors in deciding which option is best for you. 

If your pension only has annuity payout options, making the right choice can be one of the most important retirement decisions you make, and it should be coordinated with your overall personal financial plan.  For this decision, you must be able to answer the questions below (especially if you are married).  To help you better consider your options, we have created this decision tree:

Source: Avidian Wealth Management

Important Disclosure:
Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Avidian Wealth Solutions (“STA”), or any non-investment related content, made reference to directly or indirectly in this article / newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article / newsletter serves as the receipt of, or as a substitute for, personalized investment advice from STA.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  STA is neither a law firm nor a certified public accounting firm and no portion of the article / newsletter content should be construed as legal or accounting advice.  A copy of the STA’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a STA client, please remember to contact STA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. STA shall continue to rely on the accuracy of information that you have provided.

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Executive Summary In 2017, we wrote an article for STA clients titled, “How Do You…

Executive Summary In 2017, we wrote an article for STA clients titled, “How Do You…

Disclaimer:

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Avidian Wealth Solutions, LLC), or any non-investment related content, referred to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Avidian Wealth Solutions, LLC. Please remember to contact Avidian Wealth Solutions, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives to review/evaluating/revising our previous recommendations and/or services. Avidian Wealth Solutions, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of Avidian Wealth Solutions, LLC’s current written disclosure statement discussing our advisory services and fees continues to remain available upon request.

Financial Planning and Investment Advice offered through Avidian Wealth Solutions (Avidian), a registered investment advisor. Avidian does not provide tax or legal advice and the information presented here is not specific to any individual’s circumstances. To the extent that this material concerns tax matters or legal issues, it is not intended or written to be used, and cannot be used, by a taxpayer to avoid penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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