Defined benefits plans, also referred to as pension plans or qualified-benefit plans, are fixed, pre-established benefit plans provided for employees upon retirement. These are called “defined benefits” because employers and employees use a formula to calculate and define the set amount to be paid out in benefits upon retirement. The formula used takes into consideration several factors, such as length of employment and the employee’s salary history. Understanding your options and the impact of each one is essential to unlocking the greater potential of your pension plan.
Knowing the optimal time to retire is key to your success in retirement. We’ll help you understand your options and eligibility and help you find the best-fit strategy for your situation. Generally, each company will have specific requirements that need to be met to receive your full benefits. These usually take your age and years of service into account. We can help you discover your company's specific requirements.
We firmly believe in educating our clients in order to empower them to make informed decisions about their wealth and their future. That’s why we’ll take the time to help you understand how your pension is calculated, so you can make confident decisions about your retirement. Every company’s pension formula is different, but formulas generally include factors such as age, number of years with the company, base pay, job title, and work group. The final dollar amount is referred to as the Single Life Annuity Benefit, which is your lifetime monthly benefit.
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People choose to retire for a variety of reasons, and while other factors must be taken into consideration, it’s financially advantageous to wait to retire when you’ll receive your full benefits. The normal retirement age for receiving full benefits is 65, generally with at least 10 years of service at the company. However, if you are on Social Security Disability, you may be eligible for Disability Retirement, regardless of your age. The chart below illustrates the potential effects of early retirement on your payout, showing the percentage you would receive when you begin receiving benefit payments between 55 and 65 years of age.
We help simplify the complicated decisions surrounding your employee-sponsored plan and your payout options. We’ll offer a candid discussion of the benefits and risks associated with the various routes, helping you decide which option makes sense for you and helps protect your hard-earned savings from taxes and short-term market volatility. You’ll learn the optimal strategy for converting your retirement savings into retirement income so that you don’t outlive your resources. And, finally, we’ll help you consolidate your retirement savings and simplify your distributions. As you begin to weigh your distribution options, here are some points to consider.
In a Life Only or Single Life “Annuity” distribution plan option, you may receive 100% of the calculated monthly benefit. You’ll receive a fixed payment—a guaranteed monthly income for the rest of your life—from the company from which you retire. However, when you die, the benefit payments cease, meaning your surviving family members won’t receive anything.
Under the Joint and Survivor distribution plan option, you’ll receive a guaranteed monthly income from your company, and you can name a beneficiary, such as your spouse, who will continue to receive your benefits in the event of your death. In this instance, the monthly benefit payment will be a reduced amount, such as 75%, 63⅔, or 50% of the full fixed monthly amount.
Under the Guaranteed Years of Payment option, your monthly benefit payments are reduced, much like the Joint and Survivor option. Where this plan differs is that if you die within a previously established period of time, your beneficiary will continue to receive your monthly benefits until the end of that set period. Generally, this option is offered in 5, 10, 15, or 20 year increments.
The Level Income option is only available with Life Only (Single Life) and Period Certain distribution plan options and is applicable when you retire before you are eligible for Social Security. Under this option, your monthly benefit payments will be adjusted at retirement and when Social Security benefits begin to keep the level of your payments.
When you choose the Single Sum (Lump Sum) distribution option, you take a direct distribution via a direct transfer to an IRA or a direct or an indirect rollover. This option allows you to take the present value of what your monthly income payout would be in the form of a lump sum, rather than receiving your benefits on a monthly basis. Most people choose this option with hopes of increasing their lifetime income. If you do choose this option it’s important to remember that investment always involves a certain degree of risk.
Unlock the potential of your defined benefit plan so you can retire with confidence. Let us help you understand your options and form an ideal strategy to suit your personal situation. Contact us today to set up a consultation with one of our knowledgeable, experienced financial advisors.