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...
Second-to-die policies are also known as survivorship policies, and are primarily used by married couples to provide a guaranteed legacy to their children after they have both passed away. These come in handy for estate planning, when an estate tax bill might be looming for the heirs. To be clear, this insurance covers the lives of two individuals and provides a death benefit to a listed beneficiary only after the last surviving insured individual dies. Continue reading...
The spousal relationship is usually intended to be a permanent one, and with it comes a high degree of financial co-dependence. Today, many working couples will mutually own life insurance for the sake of the other, so that long term financial plans do not have to change drastically if one of them dies. Even in the case of a non-working spouse, they are probably doing something that brings economic value to the household, a contribution which can be insured with life insurance. Life insurance on your spouse may protect you the same way that life insurance on your life can protect your spouse. 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...
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...
Social Security retirement benefits are computed by finding the average monthly income of a worker during the highest-earning 35 years of employment, and then it plugs that amount into a formula for to determine their full benefit at Normal Retirement Age (NRA). A person may then choose to take benefits before or after NRA, with applicable reductions or additions. There are different equations for spousal benefits, survivor’s benefits, and maximum family benefits. Continue reading...
Social Security uses a formula that applies a factor to your average monthly income from the 35 years in which you earned the most. The benefit will be calculated for your Normal Retirement Age (67 for most people today), and you should receive statements in the mail keeping you updated on your projected or actual Social Security Retirement Benefits. Every year, you should get a statement from the Social Security Administration that provides you with exact numbers. The amount depends on the age at which you retire, and the contributions you made to Social Security over the years. The formula uses the 35 years in which you earned the most, and divides it by the total number of months in 35 years, which is 420, which leads to your Average Indexed Monthly Earnings (AIME). Continue reading...
Spouses and children can and do receive social security benefits upon the death of a person who paid into the system. A spouse who is older than 60 will always be able to receive either a majority of the benefit that was (or would have been) paid to you, using their own age against the full benefit amount that was part of your benefit equation. Children, including dependent grandchildren, can receive a payment equal to 75% of your full benefit amount until they are about 18. Continue reading...
Each Defined Benefit Plan has its own formula and therefore its own calculations. These formulas need to be arranged by an enrolled actuary to insure that they’ll work over time and will hold up to IRS scrutiny. In general, however, the calculations are strongly based on factors such as your age, your salary, and the number of years you have spent working for the company. For every bit of salary you collect, or length of time you add to your tenure, you add incremental amounts to the set benefit waiting for you in retirement. Continue reading...
You cannot claim your own social security benefit until you have reached age 62, and you have to start taking them by the time you reach age 70. You can actually start receiving benefits while you are still working, but your benefits will be reduced if you are younger than Normal Retirement Age. Currently, you have to be 62 years or older to start receiving Social Security benefits, and this includes spouses who wish to claim spousal benefits. You must start to receive benefits at age 70. Keep in mind that the longer you defer your benefits, the greater your Social Security payments will be (until age 70 of course). Continue reading...
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...
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...
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...
Yes, you can start receiving social security benefits before you actually stop working, and your benefit amount will not be affected if you have attained normal retirement age, or NRA, which is determined based on the year of your birth. NRA is 67 for most people today. If you start to take benefits while working and before the normal retirement age, your benefit will be reduced. But there are a few caveats to consider if you start to receive the benefits before your normal retirement age. 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...
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...
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...
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...