Does your current employer offer a retirement plan? If they offer something above and beyond a 401(k), good for you!
Find out if this is a defined benefit or a defined contribution plan.
What’s the difference?
Defined benefit means you will get $X/month as a pension when you retire based on your salary and years of service. Pretty simple. They tell you the amount that you are getting.
Defined contribution plans mean that your employer will put in $X a year into a retirement plan on your behalf. It is usually a percentage of your salary. The difference is that they aren’t guaranteeing how much your will get at retirement. When you retire, the amount you get is based on how much they’ve added, and the performance of the account. You can choose to take a lump sum or an income stream as a pension when you retire.
Why do you need to know this? A couple of reasons… Frequently, when someone retires and they get a pension, they can elect to take a smaller pension amount and have the pension extend to their spouse after they pass away. This is great for financial planning purposes.
If you aren’t married and have a partner, many employers do not extend this benefit to the unmarried partner. Particularly if it’s a government agency, such as a school system, law enforcement, etc. This changes the financial planning landscape. If you are unmarried and partnered, you might be better off to take the lump sum upon retirement instead of the pension. Or take the pension and get additional life insurance.
Either way, planning is a little tricky in these situations. So find out what you have and how it works.
Sharon L. Herman AAMS, ADPA is the CEO of Silver Key Wealth Management, and affiliated with LPL Financial. www.silverkeywealth.com
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Silver Key Wealth Management, a registered investment advisor and separate entity from LPL financial.
Ms. Herman may only discuss and/or conduct transact securities business with residents of FL, MI, GA, VA, NJ, TX. www.finra.org www.sipc.org