Is Your Buyout a Sell-Out?

If you work for a major corporation, you may have been offered a pension buyout. If you haven’t, there’s a good chance it’ll happen sooner than later. That’s because corporations want to reduce their pension liability. Let’s be clear, future pension liabilities can be a gigantic financial burden. Getting the liabilities off the books is a windfall for the company’s bottom line.

In most cases, companies offer a one-time, lump-sum payment. In some cases, the offer may include an option with an annuity with a life insurance company. If you go with an annuity option through an insurance company, you might see an even better monthly payout or be able to claim your payments even earlier than if you waited for your normal pension to kick in.

The question you have to ask is, what’s best for you?

The big difference in receiving a pension for your retirement and getting a lump sum is that you are now in charge of that money. If you accept the payment, what you would typically do is roll the money into an IRA or some other type of retirement account. However, that’s not a requirement. You can invest or spend your money as you see fit.

I can’t write this blog and advise you what to do because each company, each buyout option and each individual’s financial circumstances vary.

However, there are several things I would advise you to consider.

If you feel your employer’s financial health is in question, you should probably seriously consider taking the offer. Although, before making your final decision, you’ll want to find out if your pension is protected by the Pension Benefit Guaranty Corporation which insures private sector pension payments, unless your benefits exceed their maximums. (The PBGC doesn’t insure public sector pensions.)

That’s important because, if your buyout includes an option for annuity payments, you have to understand there is no PBGC guarantee if the insurance company runs into financial difficulty. So, if the insurance company is not a name you’re familiar with, you will want to do some research into their history. Just like every other company, insurance companies are run by people, some of whom are less competent than others.

The biggest question, however, is are you confident enough in yourself to manage a lump sum? This may be the largest sum of money you’ll ever receive. Are you comfortable in investing it? Do you know how to reduce your tax obligations? What is going to be best for you and the beneficiaries of your estate?

These are questions I’m happy to discuss with you. Click the “schedule a consultation” button beneath this blog to arrange a time when we can get together.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the J Benjamin Financial employees providing such comments, and should not be regarded as a description of advisory services provided by J Benjamin Financial or performance returns of any J Benjamin Financial Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. J Benjamin Financial manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.