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A Wealth Advisor in Denver Discusses Lump-Sum Pension Payout Options

A Wealth Advisor in Denver Discusses Lump-Sum Pension Payout Options

You’ve worked for the same company for a while now, so you finally vested in a defined pension plan. Your pension payout forms the foundation of your retirement income plan. And whatever you choose, you can’t go back on your decision. The choice is seldom completely clear-cut, and the consequences impact you and your family for years or even decades. So, your choice needs to be based on your financial retirement plan. Your fiduciary wealth advisor in Denver can help you consider the several key factors that make a difference, like your age, health, income requirements, and income sources. 

A Wealth Advisor in Denver on Lump-Sum Pension Payout Options

Your pension plan has probably offered you just two options – a lump-sum amount or a monthly payment. It’s essential to know how your company calculates your pension payout. Monthly pension benefits are calculated based on earnings level and years of service. For example, your pension benefit amount could equal 2% of your average earnings in the last five years, multiplied by the number of years of service. A monthly payment is the annuity option with several joint and survivor variations. This article discusses why you might choose a lump-sum pension payment option. 

A Lump-Sum Pension Payout Option

A lump-sum pension payout option is a simple, one-time payment. The payment amount is calculated using the present value of the payments you would receive if you chose the monthly payout. Usually, the formula applies a discounted rate currently tied to the 30-year Treasury note. 

Once you receive your lump-sum payment, you can invest that amount any way you choose. But if you don’t roll it into an IRA, the whole amount counts as ordinary income that year, and you pay taxes accordingly. If you do immediately roll it into an IRA, the taxes defer until you make a withdrawal of the funds. If you make a withdrawal of those funds before the age of 59 ½, the money could be subject to a 10% penalty. Discuss the details with a wealth advisor in Denver to determine if the 10% penalty would apply to you. 

A Wealth Advisor in Denver Suggests Why You Might Choose the Lump-Sum Option

You might choose a lump-sum payment option for many reasons. The most compelling being that you’re confident you can invest well enough to out-earn the monthly payout. This is where a fiduciary wealth advisor in Denver can help. 

If you are single, a lump-sum payment provides more flexibility to decide how your estate will pass the remainder to family members or charities. Also, if you have another income source and don’t need any more monthly income, controlling the pace of withdrawals can be beneficial. 

You only get one opportunity to choose your pension payout option. Once payouts begin, the choice is irrevocable. So, weigh your options carefully. Choosing the right fiduciary wealth advisor in Denver can be an important decision to help make sure your investments perform well.