Post # 1
I have a pension question and no one has been able to help me so far. I worked at a hospital for about 7 years before leaving and working as a school nurse. I had a pension at the hospital and was vested when I left. I now have about $12,500 in the pension account. My original plan was to roll it over, until I found out that a pension can’t roll into a 403(b) (see, I really know NOTHING about all this). A 403(b) is what my school offers.
So, my original plan was to leave the pension alone for now. But, the pension also has a joint and 50% survivor annuity which is what is confusing me. I understand the part about it giving 50% of the annuity to your surviving spouse at retirement if you (the primary beneficiary) die first but does this also mean that once I get married, I am only entitled to 50% of the benefit? I am so confused about what this means and what to do.
A few people have suggested rolling it into an IRA, which I wouldn’t be opposed to, although part of me so badly wants to take the lump sum after penalties and taxes to help pay for this wedding! Tell me how stupid that is please.
Any help is VERY appreciated.
Post # 3
Unless you HAVE to, it’s probably not advisable to use the lump sum for the wedding!
It really comes down to deciding between taking the annuity (with the 50% survivor benefit) or rolling the lump sum to an IRA. You should have a sheet that tells you what your benefits would be with the 50% survivor benefit – you get that full amount until death and then your survivor gets 50% of it.
Generally, an IRA is a better option because it gives you access to the money at any point, and after age 59 1/2, it’s penalty free. Usually annuity payments don’t begin that early. You can also use IRA funds penalty free for higher education or a first time home purchase. It also gives you investment control – although this is risky, you can earn a much higher potential than what your annuity may give you.
Hope this helps!
Post # 4
Take this with a grain of salt, but this is my understanding of a pension. A pension is not like an IRA or retirement account. You cannot roll it into a regular account. It is only paid out to you upon retirement by your company. Usually there is a formula that determines how much you get on a montly basis. The 50% survivor annuity is saying that if you die before your pension account is paid out to you, your spouse gets 50% of what was entitled to you. The 12k is not a lot in terms of pensions terms, so honestly, I’d pretend it doesnt even exist. Pensions really count when you’ve been at a company decades and the expected pay out is going to be upwards for 2k/month.
Post # 5
@pinkshoes: Usually that’s right, but if you are given an option of a lump sum, you CAN roll it to an IRA. There’s usually only a short window to make that choice.
Post # 6
@MrsM914: Do NOT use your pension for a wedding!! It’s a pension… not fun money to blow. You will regret it in the future. If you can’t afford a wedding with your current savings, scale back. Starting life as newlyweds in debt or with no savings is a bad idea…
Post # 7
@hartmamp: ah, I see. I had that happen with me with an old company 401k plan – we could roll it over or take the lump sum, but I’ve never heard of that with a pension cause I didn’t think a pension could be a fixed amound since I thought pensions were paid a set monthly amound for life.
Post # 8
It depends on the type of pension that you have – traditional or cash balance. If it is a cash balance pension, and the plan allows it, you may be able to roll that into an IRA. I have 2 cash balance pensions from previous companies – I rolled one into an IRA when the pension plan stopped contributions. The IRA lets me control how the money is invested. The other pension only allows annuity payments at retirement age. If it is a traditional plan, you will only be able to take the annuity. You need to talk to the pension plan administrators to find if there are any restrictions.
Do not take this money to pay for your wedding. This money will grow in your plan (or IRA) to be used in the future.
Post # 9
Ok, I am convinced not to take the lump sum out. Although, it wasn’t going to take much convincing anyway. It didn’t seem like a good choice. I just really needed someone to explain the idea. The way my paperwork is worded, it sounded like once I got married the payout would automatically get cut by 50%. This is what it says,
“The monthly benefit shown in the preceeding paragraph is payable as a single life annuity. If you are single, this is the automatic payment form under the retirement plan. If you are married, this monthly benefit amount must be paid in a decreased amount as a joint and 50% survivor annuity (the automatic payment form for married participants). The amount of the decrease depends on the age of you and your spouse and the interest rate in effect under the plan. For example, if you are age 45 and your spouse is age 42, your monthly benefit payable as a single life annuity is $100 and the interest rate is 7% per annum, then the joint and 50% survivor annuity would be $95.83.”
The previous paragraph says that my annuity would be $199.50 per month if I was single at the time of payout. So does this mean that if I am married, the annuity will be decreased to $195.83? And then, if I die before my husband, he will recieve $95.83 per month until he passes? If so, then maybe I will just leave it alone, since we will stand to collect almost $200 per month for life starting in 2048.
I just saw the 50% and thought that meant that if I was married, I would automatically lose half of that money. If that is the case, I need to do something with it before the wedding!
Thanks again, bees!