Pensions are income streams guaranteed to employees upon their retirement. A Pension is a type of Defined Benefit Plan in which your employer promises to pay you a certain amount every month for the rest of your life. Employers who are part of the pension plans are sometimes called pensioners. An employer retains the funds in a trust, usually, and everyone’s pension assets are pooled together in what’s called a Pension Fund. Continue reading...
When an investor takes a short position on an option contract by selling (“writing”) a call or put option, he or she is opening a position, which creates more open interest in an underlying security which will be handled by the brokerage house, and this is called “selling to open.” If the price changes in the underlying security in an unfavorable way, the investor will seek to get out of the short position he holds on the options contract before the option’s expiration date. To do so, the investor must buy back the option (or, really, cancel out the position by buying the same kind of contract that he or she previously sold short). Continue reading...
A closed-end fund is a collective investment model where a company raises a fixed amount of capital through a share offering. It’s also known as a closed-end investment, and it trades on a stock exchange just like a stock. Closed-end funds that are managed generally tend to focus on a specific sector or segment of the market. What is an Open-End Fund? What Should I Know About IPOs? Should I Buy IPOs For My Portfolio? Continue reading...
Enrolled actuaries must be used to establish the benefit formula.The amount of money you will receive (monthly) from your employer during retirement is calculated by a formula which incorporates your age, your salary, the number of years you worked for your employer, and other possible factors. The IRS stipulates that an enrolled actuary must be contracted to perform the calculations, with input from the employer, to determine how the benefit will be calculated and to make sure that the plan assets will be sufficient to pay the benefits when the employees reach retirement. Continue reading...
You may not be vested in a pension if you lave too early, or you may have to accept a lower payout. This depends on how many years you worked for your employer, and other factors which are described in your pension plan document. In some cases, the employer can specify a minimum number of years you have to work for the company in order to receive a Pension. Otherwise, the amount you receive will be vested in portions over a few years, until you will be able to leave your job and keep 100% of the accrued Pension benefits. Continue reading...
This is rarely an option, but the IRS does allow it. In general, you can’t withdraw money from a Pension Plan before you retire. You also may not be able to make non-recurring withdrawals after retirement, unless it is a lump-sum settlement. If your plan allowed it, the IRS would treat it just like withdrawals from a 401(k). Withdrawals before 59 ½ would be penalized with a 10% early withdrawal tax. Continue reading...
Generally this won’t be an option that your plan allows, but the IRS has approved it if the employer wants to. Generally speaking, you cannot. Hypothetically, if allowed in the plan document, and if the pension fund had enough of a surplus to handle such withdrawals, the IRS might find it permissible. The laws concerning such loans are the same for all qualified accounts, such as 401(k)s. An enrolled actuary would need to help you define when a loan might be allowable in particular deferred benefit plan. A Pension’s main goal is to pay out in retirement for the duration of the obligation, which may be your life and possibly the life of your spouse. Because of the massive liability they shoulder, pensions are inherently rigid and uncompromising when it comes to loans and withdrawals. Continue reading...
Not in the way you’re probably thinking, but the answer may be yes. Generally speaking, the answer is no. Your Social Security payments depend on two factors only: the age you started to receive Social Security benefits, and the amount of contributions you made to Social Security over the years. Your pension comes from your employer, and Social Security comes from the government. However, your tax liabilities might depend on the combination of your pension and Social Security benefits, and you social security benefits can actually be taxed. In one of the few calculations that has not been indexed for inflation lately, if your retirement income is over a certain number, up to 85% of your social security may be subject to tax as income. Continue reading...
Regular pension payments are periodic distributions. Yes. This will be the default option on pension arrangements, unless companies are trying to settle with pensioners for lump-sum amounts that will lessen the plan’s long term liability. The options for periodic distributions will always be for periods less than or up to a year in length. Periodic distributions can help you sleep better at night, knowing that you have a fixed stream of income for the rest of your life. It may not be enough to sustain your lifestyle completely, but it will give you a sense of financial security and prohibit overspending in a way that the lump-sum distribution does not. Continue reading...
Employees are not able to control investments in a Pension Fund, but you can control a few variables. You cannot direct investments in your pension. Since a pension is a type of Defined Benefit Plan provided by your employer, the company worries about the investments, and you will receive a fixed monthly payment that is calculated based on your age, salary, and number of years worked for the company. Continue reading...
Most estimates project that the Social Security Trust Funds will be depleted by 2037. The system could still function at 70% of their full obligations by transferring cash flow directly from social security taxes to the retired beneficiaries, which most people don’t realize when they spread the news that the system is tanking. Adjustments to the system and interest rates could change how this plays out and keep it operating closer to full capacity. Continue reading...
If an annuity or pension will pay your spouse a survivor’s benefit that is adequate to support his or her lifestyle, then you may not need to a life insurance policy to cover this need. Annuities are seen as longevity insurance which protect against outliving money, while life insurance protects beneficiaries if the insured person dies younger than expected. If something happens to you and you have an annuity, your surviving spouse would either continue to receive periodic benefits or take a lump-sum distribution, depending on what kind of payout option you chose when you signed the contract. In the case of the lump sum it may only be for the amount of principal that had not been paid out yet in annuity payments. Continue reading...
Generally speaking, the closer you are to age 70, the better. But everyone will need to take all of their options into account and use some planning tools or the assistance of a professional planner to arrive at an ideal cash flow scenario for retirement. All assets should be brought into consideration, as well as the possible social security benefits of both spouses and their spousal benefits. There is no one “best age” to start receiving the Social Security benefits. Everyone has a Normal Retirement Age (NRA), which determines the age at which you can receive your “full” Social Security benefits, but you can defer your benefits past this point to receive an 8% increase for every additional year you deferred your benefit. Note that benefits cannot be deferred past age 70. Continue reading...
Cash Balance plans are Defined Benefit plans, but are not much like Pensions as you may know them, or other types of retirement plans, for that matter. On one side of the retirement isle you have defined contribution plans, such as 401(k)s and SEPs and so on, where the contributions are certain, or at least ascertainable, while the ending balance or benefit of each employee’s account is unknown, or at least does not have to be (and in most cases isn’t). Continue reading...
There is no guaranteed option to make lump-sum distributions from pension plans. You may be able to take a lump-sum distribution, but the option is not always available. Most employers are eager to get another participant (liability) off the books. This kind of settlement is a lot like a debt settlement, in fact, that’s exactly what it is to the plan fund. As long as you are part of the plan, you represent an unknown quantity of liability, because they have to keep paying your benefits, and possibly spousal benefits for as long as either of you shall live. This is an option you may have upon reaching retirement, if the plan offers it to you. Continue reading...
Usually such withdrawals will be in the form of income payments, but there may be other options. If the plan administrator allows it, you can make non-recurring (one-time) withdrawals from a pension fund. This is usually not allowed, however. The regular qualified plan distribution rules will apply as far as the IRS is concerned, and they may charge a 10% penalty if the withdrawals are taken before age 59½. After you retire, you’ll typically have two options: a fixed monthly payment for the rest of your life (also known as a Life Annuity), or a lump-sum payment. Continue reading...
Keogh plans are any type of qualified plan at a sole proprietorship or partnership. Keogh plans come in various forms, and this is because they are actually quite a broad category. IRS Publication 560 (found here) divides workplace retirement plans into SIMPLE IRAs, SEP IRAs, and Qualified Plans. This last category, Qualified Plans, includes profit-sharing plans, 401(k)s, 403(b)s, money purchase plans, and defined benefit plans such as pensions and salary continuation plans. Continue reading...
When trading options, the language is slightly different than other transactions. You might be “opening” or “closing” a position with each trade. If you buy a put or call option, your ticket with say “buy to open” since you are opening a position and increasing the open interest on the underlying. Open interest is similar to trade volume in the stock markets, but it only increases with the number of outstanding positions interested in the outcome of the movements of the underlying security, and does not increase with each trade like trading volume. Continue reading...
The “buy side” refers to businesses in the financial services industry such as pensions, mutual funds, and asset managers that manage money. Since firms on this “side” of Wall Street tend to be the ones buying and selling securities for their portfolios, when a person works for one of these funds or companies they are said to be on the “buy side.” Research analysts that provide analysis and data to fund managers solely for the purpose of making investment decisions within the portfolio are “buy side analysts.” That research is typically not published for public use. Continue reading...
Life Income Funds (LIFs) are available to Canadians who have left a job before retirement and who are entitled to a sum of money in their pension plan. LIFs offer some flexibility, more than some other alternatives, but the amount that can be withdrawn at a time is limited to a minimum and maximum. The former employee could choose to leave the funds in the pension plan, or to use one of the alternatives to LIFs, which include a Locked-In Retirement Account (LIRA), which is provincially-regulated, or a Locked-In Retirement Savings Plan (LRSP), which is federally regulated. LIRAs and LRSPs do not permit regular withdrawals, and are seen as savings vehicles rather than income vehicles. Continue reading...