Part of your retirement plan mix
Traditional pension plans, also known as qualified defined benefit plans, generally entitle workers to receive monthly benefits from a plan after they retire. These benefits are usually based on your age at retirement, years of service and average earnings with a company. The normal form of benefit is a single life annuity. That is, an annuity that makes monthly payments to you while you're alive and stops upon your death.
If you're not married at retirement, federal law requires that your benefit be paid as a single life annuity, unless you elect a different payment option. Federal law also states that your benefit be paid as a Qualified Joint and Survivor Annuity (QJSA) unless you elect another payment option if you are married when you retire. The QJSA is an annuity that pays monthly benefits to you while you're alive and continues to pay at least 50 percent of your benefit to your spouse upon your death.
Depending on your plan's provisions, you may have other payout options. Any optional form of benefit offered by your plan must be at least as valuable, actuarially speaking, as the single life annuity. You'll want to select a payment option that will provide you with sufficient retirement income. In addition, if married, you'll want to be sure that your spouse will have sufficient income in the event that he or she outlives you.
Be sure you understand all of the options and features available to you under your employer's plan. For example, some pension plans have:
- A cost-of-living adjustment (COLA) feature that allows the monthly benefits to be periodically increased to keep pace with the rate of inflation
- Special provisions specifying that if a pensioner initially selects a QJSA payout and the spouse dies first, that pensioner can then retroactively select a single life annuity payout
- Health coverage
Ask one of our CFS Financial Advisors about the role a pension can play in your retirement plan. Contact a CFS Financial Advisor at Denali today.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/ SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Denali Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
For specific tax advice, please consult a tax professional.