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Pension vs. Annuity: Other Considerations

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In general, an annuity will give you the most control over your money. If you take a lump-sum pension payment, you have the ability to use the money however you choose. For some people it could make the most sense to use a portion of your lump-sum to purchase an annuity and then invest the rest in an IRA or other tax-deferred retirement account. This is beneficial since you will still have the advantage of a regular income via the annuity, plus other money that’s growing while remaining accessible in case of emergency.

In the pension vs. annuity match-up, a pension requires the least thought and planning from you. If you have any concerns about the future of the company who is paying your pension, getting your money in a lump-sum could be a wise choice. However, as mentioned, your pension is likely to pay out at least most of its value because federal law protects pension payments.

Pension vs. Annuity: Which You Should Choose

Whether you opt to receive regular payments from a pension vs. annuity payments will depend on your specific financial situation. Start with a retirement budget. Figure out how much you will spend on essentials. Then consider all your sources of retirement income. Do you have enough to cover what you need? If you do, consider taking your pension payments. You may not want to go through the work and cost of finding the best annuity. If you don’t have enough retirement income to cover your costs, then putting money into an annuity may be a way for you to earn some more money that you would otherwise have.

Tips to Help You Save for Retirement

  • The best way to start saving for retirement is by taking stock of what you already have. Then, as part of the budgeting process, you will know how much more income you need in order to meet your spending. Do you have any savings in an employer’s 401(k)? If you do, use this 401(k) calculator so you can see how much you will have in your account when you retire. For those who don’t have access to a retirement account through an employer, have you considered a traditional IRA or Roth IRA?
  • As you get closer to retirement, you’ll be looking into your Social Security benefits. Social Security provides a regular source of income but first you need to make sure that you apply for Social Security.
  • When you think about retirement savings, you should also think about financial advisors. An advisor can help you to create a plan that allows you to meet all your savings goals for both the short-term and the long-term. A matching tool like SmartAsset’s can help you find an advisor to work with who meets your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options to up to three advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

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