Pension Buyout Offer: What’s Your Best Move?

July 12th, 2016 by admin

Retirement planning occasionally involves surprises, and one is the offer of a pension buyout. A recent article in Kiplinger’s, “What To Do If You Receive A Pension Buyout Offer,”  discusses the reasons why a company would offer a pension buyout to its employees and what you’ll need to consider before making a decision.

Low interest rates are one reason for companies to offer pension buyouts.  Many pensions were created long before the current low-interest environment became the new normal. To make matters worse, pension funds invest in equities and bonds just like any investor, and returns may not be growing as well as the company had anticipated when first setting up the pension plan.

According to Milliman 100 Pension Funding Index (PFI), as of April 2016, the 100 largest corporate defined benefit pension plans funding status dropped by $25 billion, leaving them underfunded by about 25%. They need projected rates of return of more than 7% to succeed, which makes buyouts advantageous for the company.

But is a pension buyout advantageous for you?

Every situation is different, so you’ll want to sit down with your CPA or a trusted financial professional and run the numbers.  What is the monthly amount of the pension, and what is the annual amount? What would you need to withdraw from your retirement savings accounts to match the pension, if you were to keep it as a monthly benefit? What is your life expectancy, and will you be able to maintain your lifestyle in retirement if you take a lump sum and invest it yourself?

This is an important decision that could have a huge impact on your retirement. If you have questions, please call us at 516-877-1900 and ask to speak with a partner.


Source:  Kiplinger’s, “What To Do If You Receive A Pension Buyout Offer,”

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