Understanding Pension Options at Retirement

Overview

Choosing between pension payment options affects your income for life. Understanding options helps make the right choice.

Key Points

• Single life: highest payment, stops at death
• Joint and survivor: lower payment, continues for spouse
• Lump sum: one-time payment, you manage
• Consider spouse's needs and other income

Action Steps

1. Step 1: Assess your situation
2. Step 2: Research options
3. Step 3: Consult Brett Henderson
4. Step 4: Implement strategy
5. Step 5: Monitor progress

Frequently Asked Questions

What pension option should I choose?

Consider your health, spouse's needs, other income sources, and investment ability. Joint and survivor protects spouses but reduces payments.

Should I take the lump sum?

Lump sums provide control but transfer investment and longevity risk to you. Compare to annuity value and consider your investment ability.

Sources: www.dol.gov, www.pbgc.gov

By Brett R. Henderson, CIMA®, CPFA®, CRPS®, CEPA®, AIF®, CLU®, BFA™ — Fiduciary Advisor at SWE90.

How Do Different Strategies Compare?

Strategy	Best For	Key Benefit	Consideration
Traditional 401(k)	High earners today	Tax deduction now	Taxed on withdrawal
Roth 401(k)	Lower earners / young savers	Tax-free growth	No upfront deduction
IRA Rollover	Job changers	More investment options	Rollover rules apply
Annuity	Risk-averse retirees	contractual income	Less liquidity

What Steps Should You Take Next?

Taking action on your retirement plan is essential for long-term financial security. Here are the recommended next steps based on where you are in your financial journey:

• Assess your current situation: Review your retirement account balances, current savings rate, and expected Social Security benefits. According to the Social Security Administration, the average monthly benefit in 2024 is approximately $1,907.
• Maximize employer matching: If your employer offers a 401(k) match, contribute at least enough to capture the full match. This is essentially matching funds that can significantly accelerate your retirement savings over time.
• Consider catch-up contributions: If you are age 50 or older, the IRS allows additional catch-up contributions to 401(k) plans and IRAs, which can help close any savings gap.
• Review your investment allocation: Ensure your portfolio aligns with your risk tolerance and time horizon. A diversified mix of stocks, bonds, and other assets appropriate for your age can help manage risk while pursuing growth.
• Create a withdrawal strategy: Plan how you will draw down your savings in retirement to minimize taxes and maximize longevity of your assets.

According to data from the Department of Labor, workers who have a written financial plan accumulate significantly more retirement savings than those who do not. Taking these steps now can make a meaningful difference in your retirement readiness.

How to Build a Retirement Plan: Step-by-Step

Follow these steps to create a solid retirement strategy:

1. Step 1: Calculate your retirement number. Estimate your annual retirement expenses and multiply by 25 (based on the 4% withdrawal rule). This gives you a savings target.
2. Step 2: Assess your current savings gap. Compare your current retirement accounts, Social Security projections, and any pension income against your target number.
3. Step 3: Maximize tax-advantaged contributions. Contribute the maximum to your 401(k), IRA, and HSA accounts. If you are over 50, take advantage of catch-up contributions allowed by the IRS.
4. Step 4: Optimize your investment allocation. Ensure your portfolio mix of stocks, bonds, and other assets aligns with your risk tolerance and time horizon, following guidance from the SEC.
5. Step 5: Plan your Social Security strategy. Use the SSA benefit estimator to model different claiming ages and choose the optimal strategy.
6. Step 6: Create a tax-efficient withdrawal plan. Determine the order in which you will draw from taxable, tax-deferred, and tax-free accounts to minimize your lifetime tax burden.
7. Step 7: Review and adjust annually. Meet with a fiduciary advisor at least once a year to review your progress, rebalance your portfolio, and adjust for changes in tax law or personal circumstances.

A qualified fiduciary advisor from SWE90 can guide you through each step and create a personalized plan tailored to your unique situation. Schedule your free consultation today.