Considerations for Taking Your Benefits

Your employer's defined benefit determines how much your pension payments will be — generally based on your years of service, your salary over the course of your employment with the company, and your final salary. But typically you have some control over how those payments are structured and whether to provide coverage for your spouse if s/he survives you.

Lump Sum Pension Payment vs. Lifetime Income

Employer-sponsored pension plans typically offer different distribution options: lump sum, also known as a single payment, or lifetime income, which provides regular payments over the course of your lifetime. Like the decision to put a portion of your retirement savings into an annuity, the choice of pension payment will depend upon your other sources of guaranteed income, your life expectancy, and your comfort with investment risk. Since this decision is usually not reversible, a thorough evaluation of the tradeoffs is warranted before you make your final decision.

More than 50% of your living expenses will be covered by Social Security or other guaranteed sources of income.
You do not expect to live beyond the average life expectancy (85 for a 65-year old male, 88 for a 65-year old female).
You believe that you could net a higher annual yield by investing the pension funds yourself.
The financial health of the paying company is uncertain.

Note: If you do choose the lump-sum option, be sure to have the payment transferred into an IRA.

Longevity runs in your family, and you and/or your spouse are likely to live beyond your projected life expectancies.
You're confident that your former employer has the financial strength to continue providing your pension payments. (Note: Even if your employer defaults on its pension obligations, your income may still be guaranteed by the federal Pension Benefit Guaranty Corporation up to certain limits. Check to see if your pension has this coverage.)

If you are still undecided about which option to take, you can always explore taking some of the assets that are distributed and purchasing an income annuity, which may have many of the same attributes of the lifetime income option available under your pension plan, and possibly additional options that better suit your individual situation.

Continuing Spousal Benefits

Under the Employee Retirement Income Security Act (ERISA), most pension plans are required to provide "survivorship payments" to surviving spouses of covered employees. In fact, if you're married, most defined benefit plans will automatically provide your spouse with survivor benefits — unless your spouse waives that benefit in writing.

Many plans allow you to elect the percentage of your benefit for your spouse to receive after you die, such as 100%, 75% or 66 2/3%. The lower the specified percentage your surviving spouse will receive, the more your current monthly benefit will be.

It's important to consider the financial resources that will be available to your spouse after you're gone. Often financial obligations do not change much when a spouse dies, but the amount of money coming in may.

Your spouse is adequately covered by other sources of lifetime income and will waive or reduce survivorship benefits to help maximize the payments you receive while you are alive.
Your spouse may not expect to outlive his/her life expectancy, given family history or personal health.

You are willing to take a reduced monthly benefit now in return for knowing your spouse will continue to receive a pension benefit after your death. A financial advisor can help you weigh these options based on your own situation.

Plan

Lump Sum Pension Payment vs. Lifetime Income

Continuing Spousal Benefits