If you have a pension, youíll need to decide how to manage the money that is available to you when you retire. Pension options are different than a 401(k) or other retirement plans.

As a vested participant in a pension plan (defined benefit plan), you qualify for a lifetime monthly benefit that is usually based on your years of service, salary, and age at retirement. These payments generally continue for your life and may for the life of your spouse, sometimes at a reduced amount. This is called a qualified joint life and survivor annuity, or QJSA.

  • Single life annuity option - With the consent of your spouse, you may instead choose a single life annuity. This provides larger payments that will continue for your life only. Some people select this option if they need the increased income or if their spouse is much older or unlikely to outlive them by a long time. Your company plan may offer other benefit options as well.
  • Monthly pension payments vs. lump-sum payment - Some pension plans also allow participants to receive a one-time, lump-sum payment instead of monthly payments. If you are eligible, you may want to consider taking a lump-sum distribution and rolling it over into an IRA. This could benefit children or grandchildren when compared to a single life annuity.

Choosing whether itís better to lock into a pension payment or roll the money into an IRA requires evaluating many complex issues. You may want to seek advice from a financial advisor because whichever you choose, payments or lump sum, it is difficult to undo the decision once itís been implemented.

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