What You Don't Know Can Hurt You
Taking a Company Pension Can Cost You More Than You Think
If your company offers a company sponsored pension plan, the decision you make upon retirement may cost you lots of money. Typically, the company will provide you with a document that lists all of the available options to you to receive these pension funds.
Pensions offer an array of payout options which can lead to confusion. (I have personally seen one company that offered 17 different payout options). Most companies do not provide advice on which option is the best for your circumstances. They will only answer questions asked of them that are specific without any 'opinion' involved. This is similar to what the Social Security Administration does, no advice just answers questions.
Do you know which option would be best for you and your family?
Choosing the most attractive monthly payout could cost plenty in lost benefits. Do you know which options don't have any benefits once you pass away? Choosing the wrong pension option, could leave your spouse with little or no survivor benefit. If you and your spouse pass away, is there any benefit to you children?
Making this selection should be made based on what you believe, but what is factual.
Example: A client had made a decision to pick the highest monthly payout available to them. Being that the employee was female and several years younger than her husband, it was logical to select this option as most likely she would survive about 10 years longer than her husband making for a good payout. (However, there was no survivor benefit with this option.)
Working with the client, we were able to establish a personal pension from their retirement funds, ensuring there would be a survivor benefit.
Isn't it worth working with a financial professional who knows the value of your options!
When to Begin Taking Social Security?
Like taxes, the future of Social Security is open for discussion. Our analysis is based on current rules.
Many people feel that taking Social Security as soon as possible will result in the largest amount of funds to be received. Well, if you expect to die relatively young, you are right. This is probably a bet you don't want to win.
Were you aware that for each year to begin Social Security benefits, your payment is PERMANENTLY reduced by 6.67%? Say your Full Retirement Age (FRA) is 66 and your FRA benefit is $1000. If you begin taking at age 62, your benefit is reduced to $750. Any COLA adjustments are calculated on the benefit received. Although you get the same percentage, you don't get the same dollars. If you are the higher earner and your spouse outlives you, they will only receive up to what you were receiving.
Can you delay Social Security benefits past FRA? Certainly, you can and quite a benefit as well. For each year past FRA that your delay, your benefit gains 8%. If your FRA is 66 and you wait until 70 (latest you can wait), your benefit has grown to $1320, permanently. It too will increase with COLA on a percentage basis.
How much can Social Security planning benefit you? It's a lot more than most people think.
Example: A couple has FRA benefits at age 66 of $2500 - each. If they start benefits at age 62, it is reduced by 25% to $1875 a month. Assuming he lives to age 85 and she live to 95 with 1.67% annual COLA, over their lifetime they would have received $1,676,334. If they delay starting SS benefits to age 70 with the 1.67% COLA and annual 8% increase (from age 66) would start benefits at $3,882 a month (each). With the same life span of 85 for him and 95 for her, over their lifetime they would have received $2,348,339. The difference - over $672,000!
Let Franklin Chase Financial show you how a couple could extract income available to you by effective retirement income management.
Social Security & Income Taxes
Depending on your taxable income during retirement up to 85% of your Social Security benefit is taxable at the Federal level. Presently, North Carolina does NOT tax Social Security benefits.
Is that worthwhile to see a professional who can design a program for you?
The Hidden Spoiler - Sequence of Returns
While one is accumulating funds for retirement, ups and downs are part of the process. While we seek to minimize the downs, time is on our side to recover and we have the opportunity to make more investment buys when prices are lower, getting stocks/mutual funds on sale can be a very good thing.
Once you retire, downturns have greater impact on your retirement balance as you are taking funds out. Selling low and not replacing leaves little room for comeback. Managing risk is more critical during the withdrawal phase - mismanaging during this tine could lead to early depletion of your nest egg.
The above chart depicts 3 different withdrawal sequences of returns: Mrs. Doe (front loaded positive returns), Mr. White (front loaded negative returns) and Mr. Rush (level returns). Since no once ensure any particular sequence it's important to manage the portfolio and other retirement assets in an effort to lengthen the duration of funds available. An interesting note, had you started with the $1,000,000 as shown and made NO additions or withdrawals, regardless of sequence, the ending balance for for Mrs. Doe, Mr. white and Mr. Rush would have been the same.
Franklin Chase Financial employs methods to manage negative returns reducing your chances of running out of funds before you run out of life. Call us find out more!