Corporate Pension Buyout? What do you need to consider?

Corporate Pension Buyouts are becoming more and more commonplace. A Pension buyout occurs when a corporation offers you a lump sum today and in exchange you give up the rights to a future monthly income.

How do I decide if a Pension Buyout is right for me?

First you need to take time to carefully consider your financial situation and how this decision will affect you and your family.

If you are offered a pension buyout, you only have a limited amount of time to decide what to do. A copy of the offer will be sent to you in a packet in the mail. It will list all the details of the buyout and when you need to reply. As soon as you receive this information, you should carefully consider your individual situation and avoid rushing into a decision.

What should you consider if you are offered a buyout from a Pension?

Here are a few questions to consider:

Question: Do I need this payment to fund my retirement?

Question: What is my life expectancy?

Question: Do you have additional goals to consider above

Retirement Income? i.e., Passing on a legacy to your children.

Question: What is the buyout percentage? Buyout Percentage calculation - by dividing the payment you would receive annually by the amount of the buyout.

Example: Your Pension offers you a payment of $580 monthly in retirement or to take a buyout of $100,000 today.

(580 x 12)/100,000 = (6,960)/100,000 = 6.96%

In this example, the company is paying 6.96% annually

against the buyout offered. Which brings us to the next Question:

Can you realistically earn the same amount if you take the buyout?

Question: Does the company's pension program currently project to be able to cover the expected liabilities? If short, at what percentage is the coverage of liabilities? The closer to 100% the more likely your pension payments will be there for you.

Before you accept a Pension buyout, be sure you, at the very least, consider the questions raised above. Taking a Pension Buyout can have a massive impact on your financial plan and how your retirement unfolds. I urge you to reach out to a Financial Advisor to discuss the pros and cons of such an offer.

-John B Bennett, CFP®

As a Certifed Financial Planner™, my goal is to work with clients to find solutions in their best interests. If you do not already have a Financial Advisor, I work with clients in many different states, and we can schedule a no-obligation Fit Call to determine if you and I would well together.

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-July 16th, 2020