Unless you are putting the money into ultra-conservative investments which probably will not keep pace with inflation , you are putting yourself at the mercy of the market. Younger investors have time to ride the ups and downs, but folks in retirement usually do not have that luxury. And with a lump sum, there is no guarantee the money will last a lifetime. A pension will pay you the same check each month, even if you live to a ripe old age. They are trying to save money. You also need to think about health insurance.
In some cases, company-sponsored coverage stops if an employee takes the lump sum payout. If this is the case with your employer, you will need to include the extra cost of health insurance or a Medicare health supplement in your calculations. One downside of pensions is that an employer could go bankrupt and find itself unable to pay retirees. Certainly, over a period of decades, that is a possibility. Should this affect your decision? If your company is in a volatile sector or has existing financial troubles, it is probably worth taking into consideration.
But for most individuals, these worst-case scenarios need not be a major worry. Keep in mind, though, that your pension benefits are safeguarded by the Pension Benefit Guaranty Corporation PBGC , the government entity that collects insurance premiums from employers sponsoring insured pension plans. The PBGC only covers defined-benefit plans, not defined-contribution plans like k s.
The maximum pension benefit guaranteed by the PBGC is set by law and adjusted yearly. The guarantee is lower for those who retire early or if the plan involves a benefit for a survivor. And it is higher for those who retire after age Therefore, as long as your pension is less than the guarantee, you can be reasonably sure your income will continue if the company goes bankrupt. You should ask yourself why your company would want to cash you out of your pension plan.
Employers have various reasons. They may use it as an incentive for older, higher-cost workers to retire early. Or they may make the offer because eliminating pension payments generates accounting gains that boost corporate income.
Furthermore, if you take the lump sum, your company will not have to pay the administrative expenses and insurance premiums on your plan. Before choosing one option or the other, it helps to keep in mind how companies determine the amount of lump-sum payouts.
From an actuarial standpoint, the typical recipient would receive approximately the same amount of money whether choosing the pension or the lump sum. Some options in this category include: Take a look at your retirement accounts and consider whether you are on target with your retirement savings. If not, your windfall could go there, and depending on the type of account, a tax deduction for making that contribution may be available.
If you are looking to buy a home soon, save some or all of your money to use as a down payment and to cover closing costs. Switching from renting to owning can be a significant financial boost, depending on your specific situation. Invest the money yourself so it can grow and you can use it in the future for whatever your wants or needs might be.
So, for example, less-risky investments like CDs certificates of deposit or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return. An investment that represents part ownership in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits.
A loan made to a corporation or government in exchange for regular interest payments. The bond issuer agrees to pay back the loan by a specific date. Bonds can be traded on the secondary market. Very short-term investments—such as money market instruments, CDs certificates of deposit , and Treasury bills—that mature in less than one year.
Also known as cash reserves. Usually refers to investment risk, which is a measure of how likely it is that you could lose money in an investment. However, there are other types of risk when it comes to investing. The degree to which the value of an investment or an entire market fluctuates. The greater the volatility, the greater the difference between the investment's or market's high and low prices and the faster those fluctuations occur.
A single unit of ownership in a mutual fund or an ETF exchange-traded fund or, for stocks, a corporation. The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments.
Also known as "asset mix. An investment strategy based on predicting market trends. The goal is to anticipate trends, buying before the market goes up and selling before the market goes down. Although you are statistically likelier to see a higher return by making a lump sum investment, the lower risk approach of pound cost averaging may help you sleep easy at night. This is a common question.
Repaying a mortgage can carry a big psychological benefit, and also provide a tax-free return equivalent to the interest rate you will no longer pay. We have an article about overpaying your mortgage vs investing.
0コメント