Take the Money and Run?

- Recently, General Motors and Ford have made headlines with their pension buyout offers. Are you also facing the possibility of choosing a lump sum payment of your pension instead of the traditional option of annuity, which means it would be paid over time?

This is a trend likely here to stay, according to Robert Bloink, Esq., LL.M., William H. Byrnes, Esq., Who wrote about it in AdvisorOne. Here are their tips:

Before choosing whether to stay with the annuity option, which is seen as a safe bet by many, or opt for the lump sum, there is one thing you will need- professional advice.

The lump sum is a unique opportunity in a lifetime to customize your stream of income in retirement, but it is a little decision should make their own.

You might be willing to take the buyout, believing that you can invest in the stock market and beat the returns offered by your company pension. It's quite unlikely. We all know how the stock markets have performed in recent years, and it would be a stroke of luck for a novice investor to make significant gains in this way.

In addition, the lump sum will probably be more money than you've seen in some time. Also keep in mind that the lump sum offered today will be part of the amount you will receive a lifetime retirement benefits, not the whole amount .

If you rely on your pension for living expenses, it is essential to understand the need to manage these funds, rather than using the appearance large sum to live a more sophisticated life.

Why choose a lump sum?

So what should you do with this lump sum? With good management (and expectations well managed), the lump sum can provide an income stream to secure life. The main advantage of choosing the lump sum on retirement annuity payments is flexibility. While an annuity can remain the safest option for many of you, today annuity options are incredibly varied.

The pension offers a fixed monthly payment for life. In most cases, there is no adjustment for inflation or changes in interest rates. The professional management of a lump sum can also provide these protections.

For example, multi-year warranty periods offered with annuities can ease your worries about locking in an annuity at an interest rate that is too low. Called a scaling technique can enable you to protect against interest rate risk by choosing multiple rates during the retirement benefit guarantee period. If you are keen to participate in the equity markets, you may be able to do it safely through uncapped index annuities. This strategy links the benefits of the pension to a market index such as the S & P 500 or more market indexes for greater protection.

If you prefer the option of a lump sum because of the opportunity to leave a legacy, you can still buy an annuity and add a rider which provides enhanced death benefits. For those concerned about the expense of long-term care, annuities with chronic care riders are available.

And for those who just are not interested in an annuity option being, longevity annuities can provide insurance against survive current investments.

Although there are positive and negative aspects to any of these choices pension, unlike traditional fixed pension benefit, each lets you customize a retirement strategy for your unique objectives. Your individual financial situation, life expectancy and personal goals must be considered in assessing whether to accept a package deal, and once the offer is accepted, how to manage the product.

One thing is certain, however- if you accept the lump sum redemption, you will need professional financial advice, including a review of your life insurance and long term care needs. Reach out to your agent or professional advisor today before taking any decision, or if you need to find a counselor, go here.