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  • Writer's pictureRob Schmansky

Lump Sum Pension Payout Considerations

General Motors and Ford retirees are facing a choice that may become a trend for traditional pensions.

As corporations seek to manage their obligations, GM and Ford have both offered pensioners a lump-sum payout from the plan which would relieve the companies of their future pension obligation. GM has taken a further step, and will offload it’s pension obligations to Prudential for those who do not take the lump sum payout.

The choice as to whether or not to take the lump sum is one that should be considered in the context of a full financial plan.

  • A few of the considerations should be:A review of retirement income needs. Do you need the full amount that the pension pays out immediately? If so, the pension may be a good option after completing a review of retirement income, including strategies for taking Social Security.

If you do not need the full amount of income, you may benefit from a rollover for two reasons: 1) the longer you wait, the more income you can purchase from a private annuity or from options to create your own pension, 2) when interest rates rise you also will be able to purchase more income.

  • Review of current assets. Do you have assets that will increase with inflation? Social Security will provide some inflation assistance, but you should review your overall asset allocation to determine if your allocation to stable income is appropriate.

  • Review of an income tax projections and opportunities. Many miss out on opportunities to save on taxes during the years around and through retirement. Your pension and retirement income plan should include a significant review of tax opportunities.

  • Specifically for retirees at Ford – is your pension completely covered by PBGC levels? PBGC will cover a specific amount of a pension, but if you are not covered it may be worth considering a rollover.

It’s almost impossible to review which option makes financial sense without reviewing your overall financial and retirement income plan. Any analysis done specifically on the alternative options today may ignore the personal factors and the opportunities to postpone income if not needed. I strongly recommend a discussion from a fee-only financial advisor whenever reviewing opportunities that are create a wholesale change in your financial plans.

The preceding blog was originally published by Forbes. To view the original blog please visit our blog at Forbes.

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