What You Need to Know About Taking Pension Distributions

What You Need to Know About Taking Pension Distributions

By Louis J. Butera, CFP® | March 16, 2023

Do you expect to receive a pension payment every month when you retire? If so, do you know how that works? If you’re among the lucky individuals who will be receiving a pension during your retirement, it’s essential to understand that you have multiple options available to you for receiving the payments. 

To assist you in educating yourself about the various methods for receiving pension payments throughout your retirement, read the following tips from our team at Butera Wealth Management.

Pension Payout Options 

If you choose steady payouts from a pension, you have several options on how to receive the money. The best option for you will depend on factors, including your other sources of retirement income, whether you are married, or wish to have the pension continue to provide income to heirs after your death.

Single-life annuity: Under this option, you’ll receive the largest possible monthly payments. However, the payments will end after your death, making it a poor choice if you have a spouse who would need the income after you pass away or have any health issues.

Joint and survivor annuity: This option provides you with pension income while you are alive, then continues the payments to a spouse or other beneficiary after you pass away. You can often choose how much income your surviving spouse would receive: 50 percent, 75 percent, or 100 percent of the base benefit. Calculate what the income needs of your surviving spouse will be when considering a joint and survivor annuity.  

Period certain and life annuity: This pension will pay a beneficiary for a set period after you die. The initial payout is usually larger than what you would receive with a joint and survivor annuity because the payout period is limited. Consider this option if you’re single but would like heirs to receive part of your pension payment if you die young. 

Options for Lump-Sum Distributions

Instead of regular payments, you can also opt to (if the plan permits) receive all your pension benefits at once in a lump-sum payment. Though you will forfeit regular income in retirement, there are some situations where taking a lump-sum distribution may make sense. Here are a few considerations: 

You can roll the funds into an individual retirement account (IRA). If you’re comfortable handling your own portfolio or having a professional assist with managing the funds, taking a lump sum and choosing your investment mix may be a smart choice. IRAs also provide more options in withdrawing money or passing it along to heirs than most pensions offer, especially if you’re not married. 

You can use the funds to purchase an annuity, in which case an insurance company pays you a regular income in exchange for depositing a sum of money with them up front. Many annuities provide payment options that rise over time to keep pace with inflation, which pensions typically do not. 

If you’re in poor health or have another source of retirement income to rely on, taking a lump sum can allow you to enjoy your pension funds today.

Build a Plan That Meets Your Needs

Planning for retirement income requires careful consideration and evaluation of various options, including pensions, Social Security benefits, and other retirement accounts. To feel confident that all of these aspects are included in a comprehensive plan that meets your specific needs, it’s wise to seek the guidance of a skilled financial advisor. At Butera Wealth Management, we have the knowledge and experience to help you navigate this complex process. Contact us today to schedule a free, no-obligation phone call by contacting us at 484-455-2661 or louis@buterawm.com to learn how our 2nd Opinion Service can make a difference in your financial life. We look forward to helping you plan for a stable and comfortable retirement.

About Louis

Louis Butera is the founder and president of Butera Wealth Management, LLC, an independent wealth management firm operating out of Newton Square, Pennsylvania. With over 30 years of experience in the financial services industry, Louis specializes in serving pre-retirees who hold management or executive roles, particularly in the pharmaceutical industry. In 2015, he started his own firm with the express goal and vision of fostering meaningful relationships with clients to help them pursue financial independence and prepare for retirement. Louis and the Butera team provide a customized process to help their clients plan for every aspect of their financial life. Trust has always been key for Louis, and with this foundation, he has helped guide his clients through many different market cycles and life milestones. 

Louis is a CERTIFIED FINANCIAL PLANNER™ professional and has a bachelor’s degree in business management from Ithaca College. When he’s not working with his clients, Louis enjoys being outside, playing golf, skiing, and leading an active life with his wife, Michelle. They are both great supporters of local charities and their community. To learn more about Louis, connect with him on LinkedIn.

Disclaimer

The LPL Financial registered representative(s) associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.

This material was prepared for Louis Butera’s use.