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Don’t make these 5 mistakes with your pension plan

Authored By: Raymond James® on 6/14/2019

Pension mistakes

Don’t make these 5 mistakes with your pension plan

Let us guide you through your transition to retirement

Happily ever after is only the beginning.

Retirement isn’t what it used to be. It’s longer. It’s more active. And it’s harder to predict.

Many of today’s retirees can expect to spend 30 years or more enjoying the fruits of their labor. That’s why it’s increasingly important not simply to plan for retirement, but to plan for longevity in retirement – all of the years it might last, all of the ways your life will change and all of the events you can’t foresee.

Retirement planning is hard enough. Make sure you don’t make these 5 mistakes with your pension plan.

  1. Giving up control of your money

If you pick any of the pension payout methods offered by the pension plan, you are guaranteeing two things. The first is an income stream for your life, and the second is that you are giving up control of those assets forever.

Another alternative option available to you, would be to roll the pension lump sum benefit into an IRA without tax penalty, and invest the benefit assets. This could provide the same income stream and allow you to keep control of your money at the same time. You decide what to take out and when to take it. You also control where your money goes if you die.

  1. Making the wrong benefit election

If you didn’t roll your pension benefit to an IRA, you had to choose an income benefit election. Once you choose, there is no going back. So be certain you understand the choices before you make an election. Many people simply pick the highest monthly payout, but if something happens to them, their spouse is left with nothing. Do you know the difference between Single Life Annuity, Joint & Survivor Pop-up Annuity and Period Certain & Life Annuity?

  1. Leaving your loved one’s empty handed

If you pick Single Life Annuity as your monthly benefit, you will receive the highest monthly payout from the pension plan. But when you die, the pension plan keeps all the money they haven’t paid out to you. That’s a risky plan, even if you aren’t married or have children. Picture this scenario, you’ve worked your whole life to finally be able to retire and live out your days doing what you want. Sadly, you get hit by a car and die just two months after you retire. The pension plan paid out roughly $2-3 thousand dollars in benefits to you, and now they get to keep the Lump Sum benefit of hundreds of thousands. Wouldn’t you rather that money go to a relative or charitable cause of your choosing?

  1. No safety net

If you don’t roll your benefit over to an IRA, your choosing to receive a check a month from the pension plan. That means you won’t ever be able to get any extra money out for an emergency. If you want to start a business, get a motorcycle, or even if you have a medical emergency, you better have a back-up plan! The pension won’t allow for additional withdrawals outside of the monthly payment. If you roll your lump sum to an IRA, you have the freedom to withdrawal as much as you want at any time. *There are some limitations to this.

  1. Purchasing power risk

Increases in the cost of living, can erode the value of your retirement resources and what you can buy with that money. If you have a pension benefit of $1,500/month and your monthly expenses are $900/month you are doing well. Fast forward 15 years, your pension is still paying $1,500/month, but now your expenses are $1,400/month. There’s not much wiggle room, and if you plan to live another 10 years, things could get dicey. If you roll your lump sum to an IRA, you can invest your assets to grow, and hopefully keep up with inflation.

Stop by and talk with our Raymond James Financial Planners today.

Jim Zientara and Jeff Zientara have been helping employees retire from the plant since 1993. They will work on your behalf to get you what you deserve. 
11009 Gatewood Drive, Suite 101 Lakewood Ranch, FL 34211 // (941) 750-6818 //

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC and are not insured by credit union insurance, the NCUA or any other government agency, are not deposits or obligations of the credit union, are not guaranteed by the credit union, and are subject to risks, including the possibility of loss of principal. Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc.

Financial Access Federal Credit Union is not a registered broker/dealer and is independent of Raymond James Financial Services.

Investing involves risk, including loss. There is no assurance that any investment strategy will be successful. Asset allocation and diversification does not ensure a profit or protect against a loss. Any charts and tables presented herein are for illustrative purposes only and should not be considered as the sole basis for an investment decision. There can be no assurance that the future performance of any specific investment or investment strategy made reference to be profitable or equal any corresponding indicated historical performance level(s). This information should not be construed as a recommendation.

A fixed annuity is a long-term, tax-deferred insurance contract designed for retirement. It allows you to create a fixed stream of income through a process called annuitization and also provides a fixed rate of return based on the terms of the contract. Fixed annuities have limitations. If you decide to take your money out early, you may face fees called surrender charges. Plus, if you're not yet 59½, you may also have to pay an additional 10% tax penalty on top of ordinary income taxes. You should also know that a fixed annuity contains guarantees and protections that are subject to the issuing insurance company's ability to pay for them.

'Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation.

If you've changed jobs or are retiring, rolling over your retirement assets to an IRA can be an excellent solution. It is a non-taxable event when done properly - and gives you access to a wide range of investments and the convenience of having consolidated your savings in a single location. In addition, flexible beneficiary designations may allow for the continued tax-deferred investing of inherited IRA assets. In addition to rolling over your 401(k) to an IRA, there are other options. Here is a brief look at all your options. For additional information and what is suitable for your particular situation, please consult us. 1. - Leave money in your former employer's plan, if permitted. // Pro: May like the investments offered in the plan and may not have a fee for leaving it in the plan. Not a taxable event. 2. Roll over the assets to your new employer's plan, if one is available and it is permitted. // Pro: Keeping it all together and larger sum of money working for you, not a taxable event. Con: Not all employer plans accept rollovers. 3. Rollover to an IRA // Pro: Likely more investment options, not a taxable event, consolidating accounts and locations. Con: usually fee involved, potential termination fees. 4. Cash out the account // Con: A taxable event, loss of investing potential. Costly for young individuals under 59 ½; there is a penalty of 10% in addition to income taxes. Be sure to consider all of your available options and the applicable fees and features of each option before moving your retirement assets.

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