While you are nearing retirement age there are common things most retiree’s look at achieving. A retiree wants to have a piece of mind that their final years are in order. They want to make sure their heirs are financially ok, that they are able to enjoy the rest of their lives vacationing and doing things they weren’t able to accomplish while they were working to provide for their families. They may have made sacrifices that have cost them a bit of money. Now they are looking at options to clear all debts to enjoy what life has to offer instead of worrying. Some want to prepare for the worst such as needing long term care and don’t want to be a burden on their family. At retirement age they are on a fixed income and many want to plan before that happens. There are options for you to start eliminating your debts. One option is looking at your pension plan.
Eligibility to Take Pension
Most people wait to withdraw their pension plan until they are retired around age 65 or the age their pension plan administrator has set. If they take the pension earlier they may lose out on the entire sum they are eligible for. Waiting until their retirement age helps a person receive their pension tax free. Taking it beforehand would put a person in a taxable situation. Unlike a 401k or IRA plan you are not eligible to take a loan against your pension. You can take cash from your pension in one of two ways: a lump sum or monthly payments. There is not a right or wrong choice. Each has their advantages and disadvantages. It’s wise to always discuss this option with your financial advisor.
Lump Sum Advantages vs. Disadvantages
A lump sum payment is taking all of the cash from your pension at once.
- Advantages: You can take care of all of your debts at once. You can also control your investments and not have to worry about your company’s financial health and loss of your pension. You can invest your money wisely and leave it for your heirs.
- Disadvantages: There is always the temptation to spend too much. You also could reduce any future government benefits. You have to be careful not to spend all of your money.
Monthly Payments Advantages vs. Disadvantages
A monthly payment is an option many people choose. They are comforted with knowing they have this steady form of income a month.
- Advantages: You will have a steady form of monthly income. Your spouse or beneficiary may be able to receive the payouts after you die.
- Disadvantages: If you need emergency funding you won’t have access to it right away.
No matter which option you take this is your chance to help set a positive financial future for yourself and your family. Having the ability to take cash from your pension is not an option too many people have as it is being phased out of many jobs. If you are unsure of your options you can also talk to your family members as well. Be sure to consider your lifelong decisions you’ll have to make.