Selecting the Right Pension Payout

May 13, 2013  | By austinwealth

Meet Ken (67) and Anne (62). Ken was a successful technology consultant who retired 5 years ago. Anne has worked for the State of Texas for 37 years and is considering joining Ken in retirement. They have a daughter with two children who lives nearby in Austin and a son with a newborn baby that lives in Dallas.

We sat down with Ken and Anne to discuss strategies to ensure that they can meet their retirement goals. During our discussion, the following things became clear:

  • They want to spend some money over the next 2 years to improve the landscaping of their home.
  • They want to spend as much time as possible with their grandkids.
  • They want to ensure that they have enough money to live comfortably in retirement.
  • They want to review their options with Anne’s pension with the State and maximize their retirement income.
  • They don’t feel like they have the expertise to manage their own investment portfolio but don’t feel like their current investment advisor is very responsive to their needs.

With these points in mind and after a thorough review of their income sources, current expenditures and assets, we discussed options to improve their financial situation and help them achieve their retirement objectives. After conducting our retirement analysis, we determined that Anne and Ken should have plenty of money to sustain their current lifestyle through retirement as long as the appropriate option was selected for Anne’s pension and the investment assets were positioned appropriately.

“”Now Anne and Ken have the time they had hoped for to spend with their family. They’ve even been able to complete the landscaping improvements at their house.
To maximize Anne’s pension, we agreed to take a partial lump-sum distribution and invest the assets to help increase the chances of keeping up with inflation. We also agreed that taking a single-life payout on Anne’s pension would maximize the amount of retirement income that Anne and Ken would receive while Anne was living. The downside with this strategy was that if Anne passed away, the pension would go away and Ken wouldn’t have enough money to sustain his retirement. To address this roadblock, we purchased a life insurance policy on Anne’s life to provide enough assets for Ken in the event Anne passes away first. The upside of this strategy is that it provides a potential legacy to pass down to their family at some point. If we would have selected a joint & survivor pension option, then there would have been no assets to pass down to heirs.

We also agreed that we would manage their retirement assets, proactively check in with them every quarter, and help them manage their retirement distributions. This has given Anne and Ken the time they had hoped for to spend with their family. They’ve even been able to complete the landscaping improvements at their house. Now that everything is on track for them, they appreciate the peace of mind their ongoing relationship with us provides them.

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