Q: My company froze our pensions last year. Can I take the money out and invest it myself? A: You’re in the same boat as many private sector workers today. Hundreds of companies have frozen their pensions in the past decade in order to shed how Do Insurance Companies Make Money On Annuities cost of providing guaranteed lifetime income to retirees. Fortune 1000 companies now have frozen pensions, according to one study.
Your employer can’t take away the benefits you’ve earned. But if you’re currently covered by a pension, also known as a defined benefit plan, your pension benefit will no longer increase. This trend leaves older workers like you vulnerable, especially if you have long tenure, says Bonnie Kirchner, a certified financial planner and president of Sea Change Financial Education. That’s because pensions are back-loaded, reaching their peak value in your last years before retirement. Whether you can take the money out and invest it yourself depends on your plan’s rules, says Kirchner, who also wrote Who Can You Trust With Your Money?
You should contact your human resources department to find out the specifics. Chances are, your employer will want you to take that pension money as a lump sum, says Kirchner. Many pensions are underfunded, and companies must make up any underfunded liabilities with additional contributions to their plans. In fact, more companies are doing so. To do so, your company may offer to pay you a lump sum in place of a monthly pension payment, or it may replace your pension by buying an equivalent annuity from an insurance company. For most people, taking an annuity that guarantees an income stream for life is a far better option than a lump sum payout. An exception might be if you are in poor health and need to tap those assets sooner. If you do take a lump sum, be sure to roll it over into an IRA—otherwise you could incur penalties and income taxes. Granted, investing a lump sum does offer the potential for higher returns, so it may be a better fit for those who want to manage their own money.
Still, few investors are capable of outperforming the market, as studies have repeatedly shown. And today a guaranteed stream of income is something that is highly sought after by retirees, says Kirchner, so think twice about rejecting an annuity. Do you have a personal finance question for our experts? Money may receive compensation for some links to products and services on this website. Offers may be subject to change without notice. Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc.
P Index data is the property of Chicago Mercantile Exchange Inc. Powered and implemented by Interactive Data Managed Solutions. Enter the characters you see below Sorry, we just need to make sure you’re not a robot. Enter the characters you see below Sorry, we just need to make sure you’re not a robot. Your browser will redirect to your requested content shortly. See the product page for additional features and more complete information. And some of our permanent policies offer the opportunity to build cash value, which you’re able to use however you’d like.
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