Prepare to collect your pension
- If you have a pension, you’ll collect payments from it in retirement.
- All or some of your pension may be guaranteed by the federal government.
- Various pension options for your payments are available.
- Some plans allow you to take a lump-sum payment and roll it into an IRA.
- If you have a pension, you’ll need to decide what to do with the money that’s available to you when you retire. Pension options are somewhat different from a 401(k) or other retirement plan.
Selecting pension payment options
As a vested participant in a pension plan (defined benefit plan), you qualify for a monthly benefit that is usually based on your years of service, salary and age at retirement. The payments generally continue for your life and, often at a reduced amount, for the life of your spouse. 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. 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.
Choosing whether it’s better to lock in a pension payment or roll the money into an IRA requires evaluating many complex issues. You may want to get help from a financial advisor, particularly because you cannot undo the decision once it’s been implemented.
|Elect a pension payout||Lump-sum rollover to an Ameriprise® IRA|
|Plan sponsor guarantees the payments and therefore bears the investment and life expectancy risks.||You bear the investment and life expectancy risks.|
|You may choose from a wide variety of investments.|
|You may change your investments.|
|The level of income available to you depends on how your investments perform.|
|The trust owns the plan assets, and the employer controls the plan.||You own the IRA and have full control and access rights.|
|You may have a vested right to income or an equivalent lump sum.||You may change providers.|
|You may be eligible to roll over or convert to a Roth IRA.|
|Typically, there are no fees||Your investment expenses, and the compensation Ameriprise and your financial advisor receive, will vary depending on the products and services you purchase within your IRA.|
|Depending on the type of account you open, you may be charged a transaction fee when trading within your account.|
|An annual IRA custodial fee may apply but will be waived if you qualify for Ameriprise Achiever Circle Elite status.1|
|Beneficiary planning and options|
|You may be able to select a survivor annuity, which offers a spouse beneficiary at least 50%.||Your spouse and non-spouse beneficiaries will have access to any balance remaining at your death. They can stretch out distributions throughout their lifetimes to help ease their tax burden and keep asset growth tax-deferred until withdrawn.|
|When the spouse beneficiary dies, the payouts usually end.||You may name anyone or any entity (spouse, children, trust, charity) as your beneficiary. You may name multiple beneficiaries.|
|Some plans may not allow a non-spouse beneficiary or a secondary beneficiary under a joint and survivor annuity option.||You may restrict beneficiary access to the assets.|
|Your decision to receive pension payments typically is irrevocable.||Your sustainable withdrawal amounts will depend on several factors, including the performance of the underlying investments.|
|You generally receive monthly payments, which are guaranteed for the life of the plan participant or the joint lives of the participant and spouse.||IRAs typically do not offer guaranteed minimum payouts, unless you purchase certain types of annuity contracts.|
|Depending on the plan, your monthly benefit may be higher or lower than the equivalent benefit from an individually purchased annuity.||In general, you may choose to take withdrawals in any amount. But you must begin taking Required Minimum Distributions (RMDs) when you reach age 70½.|
|Your employer may subsidize certain payments, such as unreduced early retirement benefits.||You may outlive your account balance (unless you purchase certain types of annuity contracts).|
|The Pension Benefit Guaranty Corporation will guarantee part or all of your monthly benefit (depending on the size of the payment) if your company is unable to meet its pension obligations.||Distributions made prior to age 59½ are generally subject to a 10% premature withdrawal penalty.|
|Adjustments generally are available in public pension plans but not in private pension plans.||Not available.|
|Favorable investment performance may translate to larger withdrawal opportunities while unfavorable investment performance may translate into smaller withdrawal opportunities.|
|Some plans provide retiree health benefits only if you choose a monthly pension.||N/A|
Feeling confident about your pension
Before deciding which pension payment options make sense for you, it is important to understand the guarantees backing those payments. Congress set up the Pension Benefit Guaranty Corporation (PBGC) to insure the defined-benefit pensions of working Americans. Defined-benefit pension plans are traditional pensions that pay a certain amount each month after you retire. If you have a pension from a private-sector job, you are probably one of the 40 million Americans covered by PBGC insurance protection. PBGC insures nearly 24,000 pension plans2.
If your company fails to or cannot make your pension payments, the PBGC guarantees “basic benefits” up to a certain amount earned before your plan’s termination date (or the date your employer’s bankruptcy proceeding began, if applicable).
|The PBGC guarantees basic benefits including:||The PBGC does not guarantee:|
|Pension benefits at normal retirement age||Health and welfare benefits|
|Most early retirement benefits||Vacation pay|
|Annuity benefits for survivors of plan participants||Severance benefits|
|Disability benefits (see exception to the right)||Lump-sum death benefits for a death that occurs after the date the plan ended|
|Disability benefits for a disability that occurs after the plan’s termination date (or the date your employer’s bankruptcy proceeding began, if applicable)|
|Benefits above the maximum guaranteed benefit amount|
Deciding whether to take monthly payments or a lump-sum payment from an employer’s pension plan is a major issue for many people approaching retirement. An Ameriprise financial advisor can help you evaluate your options and find other ways to potentially maximize your pension distribution.