Pension Fund or Retirement Annuity: How Each Work

Pension fund or retirement annuity, which one is better? Who knows? We're going to find out. We're going to answer the questions and help you understand how to make an informed and rational decision. By the way, I'm Stan The Annuity Man, America's annuity agent, licensed in all 50 states. Let's get right into it.

Lifetime Income Streams

All right, for those of you that are working for the huge company, and they have a pension fund, hey, you're one of the few. I think less than 10% of the companies out there, private companies, offer pension plans, and when they do offer a pension plan, and you get to the final lap of your work environment there, and you're there at the end, and you're saying, "Okay, should I take their pension or should I take their lump sum?" That's an excellent question, and that's when you need to schedule a call with us because we'll take the lifetime income stream quote they provide for you. We'll run that quote with all carriers in the private sector to see if you're getting the best contractual guarantee because, in essence, that's what you need to find out.

Now, that doesn't mean you have to take their pension annuity, because they're going to say, "Hey, we're going to pay you out this amount, or you and your spouse out this amount, or we're going to give a lump sum." It's not always like that, but 99% of the time, it's like that. So, if you don't need income, I guess you take the lump sum and you go invest and do your thing. But if you're choosing the lifetime income stream, there are a couple of things you need to do to make sure that you're making the best decision.

Example

Okay, so they're offering the pension. Your company is great if they're doing this because most people don't do this anymore. So, they're going to come at you and say, "Okay, we'll give you this lump sum. You can walk away. No gold watch." Or as they say, "No Frolex," fake Rolex in New York City, Frolex. Or, they're going to provide an income stream. Let's just say they go, "Okay, we're going to give you $400,000, or we're going to give you $2,500 a month for the rest of your life or joint life," whatever.

If you don't need income, this is a really easy decision. Take the lump sum and go invest it. Do your thing, right? But if you need the income guarantee as part of your overall income floor and they're offering $2,500 per month, you need to send us that quote so we can quote all carriers to see if their offer is better than the street. Here's the interesting part: I've done this for a long time and am the number one guy out here. Most of the time, and when I say most, I mean, like, 80% to 85% of the time, we find that the offer that the company is giving you for a lifetime income stream is higher than all of the carriers on the street, all of the names that you love and see on the advertisements. And you got to say, "Why? Why would that be, Stan?" It's because the company wants to hold on to your money.

See, they don't want to give back the lump sum because they have to come up with a lump sum. But if they beat everyone else's quote on the street, and that $2,500 is the highest quote out there, then they only have to come up with $2,500 a month for the rest of your life. So, it makes sense. They're trying to hold on to the money. In most cases, these companies ensure that their income stream, quote, and lifetime income quotes are better than the street, but you have to find out if that's true. That's where I come in, and I'll tell you, I mean, 85% of the time, I say, "Hey, stay there. They got the best quote."

Claims-Paying Ability

The other thing you have to consider is your company's Claims-Paying Ability. Are they solid? Are they going to be there? Do you trust them? Those are valid questions because they are on the hook to pay you for the rest of your life. Now, there's something called the Pension Benefit Guarantee Corporation, PBGC, that backs up these pensions. It's a government entity. Those are options you have when the pension's coming your way.

The Options

Let's talk about your options in the private sector annuity world, where you're quoting all carriers. We've already said that most of the time if you're looking for income right now, immediate type income, that company's probably going to have the highest contractual guarantee. But if they don't, we would be quoting Immediate Annuities. Those are called Single Premium Immediate Annuities. That's the quote that we would run from a comparison quote to make sure that you're getting the highest contractual guarantee for your specific situation.

But if you said, "You know what? I don't need it now, " let's go back to the example where it's $400,000. They're going to give you a $400,000 lump sum, or they were going to give you the income stream, and you said, "You know what? I don't need the income stream right now, but I'm probably interested in putting income guarantees in place for the future," like to address inflation or for your spouse. So, you could take the $400,000 and do a transfer non-taxable event into what I call income later strategies, so you can have it start as soon as 13 months and as far out as 20, 30, 40 years, depending on your situation. You can defer it.

We would quote Deferred Income Annuities, QLACs, Qualified Longevity Annuity Contracts, or Income Riders for the highest contractual guarantee based on the parameters you gave us. For example, if you said, "You know what? I'm retiring. I'm 62, but I want to see the guarantees for age 75," so 13 years of deferral, what would that contractual guarantee be? We would quote Deferred Income Annuities and Income Riders in that case because QLACs have a premium limitation.

So, this is how you look at it: do I take the pension annuity, or do I take the pension fund lump sum and convert it into a lifetime income stream at a future date? That would be a choice that would make sense. The other choice that makes total sense is no annuity. Take the $400,000 and go invest it.

Thanks for taking the time to read this blog! If you have any questions or need further clarification, feel free to schedule a call with us. You can also download my annuity books for free with no strings attached. I appreciate you being here today!

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.