Will you receive pension payments in retirement? If so, consider yourself lucky. Pensions are quickly disappearing from employer benefit offerings. In 1998, 58 percent of Fortune 500 companies offered pensions, also known as defined benefit plans. By 2015 that figure was down to 20 percent.1

Many employers have transitioned away from pensions and toward defined contribution plans such as the 401(k). In a pension, the employer is responsible for funding the plan and paying retirement benefits. In a 401(k), the employer may make some contributions, but the burden of funding the plan largely falls on the employee.

Pensions are valuable retirement planning tools because they provide a reliable, constant source of income. Even if you haven’t put much money away for retirement, you can still count on your reliable pension income after you leave the working world.

There may be some elements of your pension benefit that require advanced planning. Below are a few tips to help you make informed decisions and better plan for your retirement:


Review your payment options.

Your payment amount is based on several factors, including your career earnings and the amount of contributions made to the plan. However, one of the biggest factors is how long your payments will last, which is determined by the payment option you choose. Your employer’s human resources department should be able to give you an overview of your options and an estimate of your payment.

One of your options will most likely be a lifetime payment, which provides a guaranteed income stream as long as you live. You also may have the option to select a payment that lasts for your lifetime and your spouse’s. You could also choose a period-certain term, in which your payment is guaranteed to you or your beneficiaries for a set number of years, even if you pass away. Generally, if you choose an income option that will continue for a beneficiary after you pass away, your benefit amount will be lower than it would have been if it lasted only for your lifetime.


Plan ahead for taxes.

Most pension plans are funded with pretax employer contributions. The plans also grow tax-deferred. These funds can’t avoid taxation forever, though. That’s why most pension payments are treated as taxable income.

If you will rely on pension income in retirement, you could face a substantial tax bill. It’s important to understand what your tax exposure may be so you can budget accordingly. A financial professional can help you map out your pension and all other taxable income so you can create a tax strategy.


Find out if you can take a lump-sum distribution.

Some plans allow you to take your benefit in one lump sum. In this option, you are paid a discounted lump-sum amount instead of lifetime payments. Of course, if you take your entire pension in one payment, you could face a sizable tax bill.

Instead, consider rolling the payment into an IRA. The pension goes into an IRA, which would allow you to avoid tax exposure and take advantage of tax-deferred growth going forward. You could also invest the funds based on your specific needs, goals and risk tolerance, and you could better manage your distributions and tax exposure. This isn’t the correct strategy for everyone, but it may be worth exploring.

Ready to develop your pension benefit strategy? Let’s talk about it. Contact us today at Jim Lee Financial. We can help you analyze your needs and create a plan. Let’s connect soon and start the conversation.




Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17380 – 2018/2/13