Do I Need A Financial Advisor For My Pension?

If your job comes with a pension, your employer is responsible for funding the pension plan and ensuring that you will receive predictable income in retirement. However, even retired people have to make financial decisions related to retirement and can benefit from the assistance of a financial advisor. Payment options and tax issues are the two most important issues.

A financial advisor can discuss options for funding a secure retirement.

Pension Basics

Pensions are defined benefit retirement plans that guarantee employees a fixed financial benefit after retirement, such as a monthly check. Pay is usually determined by a formula that uses years of service and the amount of wages or salaries.

Unlike the more common defined contribution plan, the responsibility for funding the pension rests with the employer rather than the employee. A person covered by a pension does not have to decide how much salary to defer or how to invest plan assets. However, there are still some important options that can benefit from the assistance of a financial advisor.

How A Financial Advisor Can Help With Pension

Retirement with a pension requires fewer decisions by participants, but choosing a payout option is a major exception. Pensions typically offer different ways that retirees can receive benefits. For example, retirees can choose to receive a stream of monthly payments or a lump sum.

A retiree who opts for a stream of payments also has options. For example, they can choose a single life option that provides monthly payments till they are alive. Alternatively, they can choose joint and survivor benefits, which provide monthly payments until the death of both the retired employee and his or her spouse.

With each option come pros and cons that vary in importance depending on the retiree’s individual situation. For example, single life usually pays a higher monthly benefit than joint and survivor. While this makes single life attractive, if the retiree dies before the spouse, the spouse will receive no further payments if single life were the option.

As an example of how this might work, if the single-life payment is $2,000 per month, the joint and survivor benefit could be $1,500 monthly. If the retiree predeceases, the surviving spouse will continue to receive a joint and survivor benefit of $1,500 in full or in part. With the single life approach, payments stop when you retire.

This choice can clearly make a big difference. A financial advisor can help someone planning for retirement evaluate their life expectancy, lifestyle needs and income sources to make an informed decision between single life or joint and survivor.

lump sum vs monthly payments

Deciding between a lump sum amount and monthly payments can also benefit from expert advice. Taking a lump sum payment may be preferable to monthly payments if a retiree experiences unexpected future expenses, wants to guide his or her own investments or wishes to leave a financial legacy to dependents.

However, the lump sum payment will be smaller than the sum of the monthly payments that a retiree can expect. A retiree who opts for the lump sum payment will be responsible for investing the proceeds, who may benefit from the guidance of a financial advisor.

One-time payments also pose tax problems. Taking a large lump sum amount can increase a retiree’s tax liability by placing him in a higher tax bracket for that year and making it difficult or impossible to claim some useful deductions. A financial advisor can guide a retiree toward strategies to reduce this tax hit, such as putting lump sum distributions into a tax-deferred retirement account such as an IRA.

A financial advisor can be especially helpful when it comes to overall planning for income during retirement. Many retirees have income from Social Security, other retirement accounts, annuities, and after-tax investment income, in addition to pension benefits. For example, some individuals may benefit from delaying claiming Social Security so those monthly payment amounts increase while they pay living expenses from other income sources, such as IRA withdrawals.

A financial advisor can also recommend more complex strategies. For example, a retiree may be better off taking a lump sum distribution, depositing it in an IRA, and then converting the IRA to a Roth IRA. This would require paying taxes now on the converted funds, but would allow tax-free growth and withdrawals later.

ground level

Those covered by pensions have fewer decisions to make than those covered by defined-contributions such as IRAs. However, they do have choices that can significantly affect their comfort and well-being in retirement. These include monthly or lump sum payments and the decision to take single life or joint and survivor benefits for monthly payments. A financial advisor can help with payout decisions as well as issues related to taxes.

tips on retirement

  • Consider discussing your retirement plans and options with a financial advisor. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with three financial advisors who serve your area, and you can interview your advisor matches for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • There are many factors to consider when deciding how much to save for retirement, such as how much you have saved now, how much income you will need for your retired lifestyle, and what kind of return you expect on your investments. can expect. SmartAsset’s Retirement Income Calculator can give you the answer.

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Mark Heinrich Mark Heinrich has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on and in leading publications such as The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and more. Mark has written books, including, “Not Just a Living: The Complete Guide to Creating a Business That Gives You a Life.” His preferred reporting is that of helping ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas Journalism Program, he resides in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking, and competing in triathlons.


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