Women in Retirement: Pension Benefits

Although many organizations have stopped offering formal pensions, there are still several large corporations out there with a pension plan in place for dedicated employees. If you have a pension available to you, or if your spouse has one, it’s critical to understand how the cash flow from your benefit will impact your retirement. Knowing what payout options you have, and which is right for you, is the perfect first step. 

Pension Benefit Payout Options

Pension plans have several payout options available to employees. These options, however, fall into two basic categories:

  1. Lump sum.
  2. Annuities. 

A lump sum payout option is exactly what it sounds like - plan participants are paid a lump sum when they retire. They’re allowed to invest, save, or spend that lump sum however they so choose, including rolling it over to their own IRA. 

Annuity options become slightly more complex. If you choose an annuity, you’re signing on for a monthly benefit payment from your pension plan throughout retirement. Here are the options associated with annuity payouts:

  1. Single life. You are paid a monthly benefit for the lifetime of the plan participant. When you pass away, the benefit stops.
  2. Joint-and-survivor. For a reduced monthly benefit, you can ensure that the spouse of the plan participant receives all or a portion of the monthly benefit for the remainder of their lives - even if the plan participant passes away. Each plan will specify the percentage that goes to the survivor.
  3. Period-certain. If the plan participant and their spouse both pass away, this option offers to continue making monthly payments to a designated beneficiary. The “period” is usually set to expire in a certain number of years (10-20) once payments begin. If the plan participant outlives this time period, they don’t get an increase in benefits and their beneficiary won’t receive payments when they do pass away. The plan participant will continue to receive the lower benefit amount for the remainder of their lifetime. 

Spousal Benefits with Pensions

If you’re facing widowhood going into retirement, or if your spouse unexpectedly passes away during retirement, you may be eligible for spousal benefits from their pension depending on the payout option that was selected. For example, a joint-and-survivor annuity could potentially provide you for all or a portion of your spouse’s monthly pension payment for the remainder of your life. 

A joint-and-survivor annuity offers a reduced monthly payment during the lifetime of the pension participant, knowing that your spouse will receive either 100%, 50%, or whatever designated percentage of your benefit after you pass away. Your monthly benefit is reduced based on the total amount you want your spouse to continue receiving monthly if they outlive you. 

When you start to look at pension payout options with your spouse prior to retirement, considering life expectancy and whether or not you both have a life insurance contingency plan that will financially support one another in the event of death, can help you to determine whether a joint-and-survivor annuity is right for you. 

Making The Best Choice For Your Unique Situation

The primary consideration women have in retirement is longevity. Data shows that women outlive men for an average of 5 years in retirement, if not longer. If a woman has a pension, this may mean she looks to take a single-life annuity payout option to maximize monthly payments, since she will likely outlive her male spouse. However, if a man in a marriage has a pension, the couple may look at joint-and-survivor annuity options to ensure that benefits extend to their spouse even after death, and even if it means a lower monthly benefit payment. 

Of course, every situation is unique. Discussing pension payout options and retirement cash flow with a fee-only financial advisor can help you to create a plan that protects both people in a relationship throughout retirement. 

Interested in learning more? Reach out! We’d love to hear from you soon.

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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