You’re in a better position to take care of your spouse if you were to predecease them, by owning the assets and leaving them behind for your spouse to continue to receive income.Your income needs can fluctuate in retirement, and the control of the assets backing your income gives you flexibility to meet your income needs.Even if the income generated from the lump sum is less than the promised annuity payment from the pension, you gain control over the assets.Įven without the risk of a default, this lump sum option is a significant factor when you consider the following: Now, I am not suggesting that all pensions are destined to go broke, but there should be consideration for this possibility when structuring your income sources that are designed to sustain you for the rest of your life.īy accepting a lump sum from the pension, you gain the control over your income assets. But when you add it all up, the decision to accept a lump sum offer is more about controlling and preserving your future income sources than it is the annuity payment you are promised from the pension. I began this article by suggesting that the decision to take a pension annuity payment over an available lump sum option often rests on which option provides the greatest income. A Lump Sum Puts Control of Your Assets in Your Hands And if the calculations are off, there is not enough insurance to recover the loss. The concern here is that when you retire and are relying on an annuity payment from a pension, you are placing a lot of trust in the pension calculations. If PBGC goes insolvent, that $12,870 promise is really only able to cover $1,500 under the insurance benefit. The promise of insurance benefits is not mathematically supported. The FDIC has billions in reserves but has exposure to trillions of dollars in bank accounts. To compound the problem, this insurance has the same problem as the FDIC. (PBGC), which is similar to the FDIC, found that for a promised benefit of $24,000 a year, they are insured only up to $12,870. So, what happens if a pension is unable to pay its promised benefits? According to The Heritage Foundation, the Pension Benefit Guaranty Corp. Since this study was released, we have seen two significant stock market declines, coupled with soaring inflation rates, which only compounds the problem, leaving the future of pensions in question and underscores the need for people to consider their options more carefully. Nearly 1 million working and retired Americans are currently covered by pension plans that are in imminent danger of insolvency, according to a 2017 Daily News article.
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