Best pension distribution plan varies by individual

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Many pension plans are now offering their participants a choice in how they receive distributions upon retirement. |ret||ret||tab|

The two primary options available are annuitizing the payments or taking the funds in a single lump-sum distribution. Participants who choose the traditional annuity receive their distributions as a fixed monthly payment for life, while those who opt for the lump sum distribution receive the estimated value of the plan as a one-time payment. Here are some of the features and drawbacks of each.|ret||ret||tab|

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Annuities|ret||ret||tab|

If you choose this approach, you receive a fixed monthly payment for life, enabling you to precisely plan and budget on a monthly basis, and you won't have to worry about outliving your retirement funds.|ret||ret||tab|

In addition to the convenience of monthly payments, some annuities also offer a variety of payout structures to choose from. For example, some policies enable you to select a "joint and last survivor" option. This plan allows you to receive a monthly check for your lifetime and, after your death, another person, typically your spouse, receives monthly payments for his or her lifetime.|ret||ret||tab|

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Annuity disadvantages|ret||ret||tab|

Annuities do have disadvantages. Inflation is a key factor to consider because most pension payouts do not adjust for cost-of-living increases. If you are on fixed payments for the rest of your life, it is important to keep in mind that as the cost of living goes up, the pension payment will not.|ret||ret||tab|

Some do not offer payout options that would continue to pay your beneficiaries after your death, meaning you could potentially forfeit any unused funds. Also, by annuitizing your payments you do not have the flexibility to select your own investments like you would with a lump-sum distribution.|ret||ret||tab|

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Lump-sum distribution|ret||ret||tab|

When you choose this option, you receive a payment representing an estimate of your plan's total value. One of the primary advantages of this type of distribution is that you can choose how to invest the money. |ret||ret||tab|

Usually the lump sum is reinvested through a "rollover" into an IRA to continue tax-deferred accumulation on these retirement assets. This can give you increased control as to how much risk your portfolio is exposed to and also can give you the potential to earn greater returns on investments. Another advantage is that any funds remaining in your account at the time of your death can be passed on to your heirs.|ret||ret||tab|

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Lump-sum drawbacks|ret||ret||tab|

Keep in mind, however, there are a few drawbacks to taking your retirement benefit in one lump sum. These include the possibility you could outlive your savings or that your investments may not perform well enough for you to maintain your standard of living. Also, if you don't elect to roll over your lump sum, in addition to having to pay income taxes, IRS penalties could also apply if you're not age 55 or older when you leave service with your employer.|ret||ret||tab|

As you can see, there are many factors to consider before selecting a distribution format for your pension plan. You should work with your financial consultant to determine how much income you will need to maintain your standard of living and how much risk you are comfortable taking. This, along with other factors, will help determine what option best suits your financial goals.|ret||ret||tab|

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