People who have a pension often wonder whether they should convert it into an annuity or a lump sum rollover. This is a huge decision and most people don’t know the right questions to ask that will help guide them while making it as they approach retirement.
In this episode, we dive right in by giving listeners some definitions of what annuities and lump sum rollovers are before covering the main things to keep in mind before choosing between the two. The benefits of each are discussed with reference to five main considerations.
- How will your choice fit into your overall retirement income plan?
- How much control do you want to maintain?
- Do you have heirs that you hope to leave assets to?
- What tax planning opportunities exist in your financial plan?
- How much risk are you comfortable taking on?
As you will see in this informative session, each option has its unique benefits under each of these considerations.
Make sure you catch this episode because no matter how unique your situation, the considerations covered shine a lot of light on the most sensible ways to handle your retirement money.
Key Points From This Episode:
- Whether to take a pension out as an annuity or a lump sum rollover.
- Understanding the difference between an annuity and a lump sum rollover.
- An initial consideration: what are your different sources of income?
- The benefit of having security that your income will be managed if choosing an annuity.
- Knowing the amount you’ll get each month with an annuity plan.
- Understanding ‘sequence of return risk’ and how a pension reduces it.
- The fact that people live longer and pensions reduce longevity risk.
- Less work involved in managing a pension over an investment portfolio.
- Taking out the rollover if you are not confident in your company.
- Using more when you need more: the higher level of control a rollover gives you.
- The ability of a lump sum rollover to be passed on in contrast to a pension.
- How lump sum rollovers allow for building in inflation adjustments, or COLAs.
- Converting a taxable lump sum to non-taxable by converting it into a Roth IRA.
- A warning to be careful of financial advisors who only get paid if you buy their product.