What is a defined benefit plan? Simply put, it’s a pension plan where the employer guarantees a monthly payment to the retirees under certain conditions and rules.

The payment is guaranteed, regardless of how long the retiree (and spouse) live, regardless of market conditions. Often, these plans have lump sum options meaning the retiree has the option to take the payment as one large lump sum instead of monthly payments. This lump-sum is a form of pension payout that calculates the present value of future payments at a prescribed interest rate.

Think of it like a mortgage loan: The lump-sum is the value of the mortgage, the pension payments are the equivalent of the mortgage payments, the term of the loan is the life expectancy of the retiree, and the interest rate is the rate approved by the governing body. A $5,000 monthly pension, depending on the age of the retiree, might have a lump-sum value of about $990,000.

So is it better to take this money and run or take the monthly payments?

In this video, we address 7 points to consider when trying to make this decision. It’s important that when planning for this major life transition, you have a clear understanding of what your options are.

Another useful video is:

Understanding your pension plan:

Surprisingly, research shows that most people spend more time planning for their two week vacation then for their retirement.Vacation lasts a week – maybe 2 at the most but retirement could last 20 years or more and so proper planning is critical.

We encourage you to speak with a retirement planning expert.

Whether you are 10, 5, 1 year away or even already retired, it’s important to meet with a professional to ensure that there aren’t any gaps in your plan.

Retirement Coaching:

If you’d like to discuss your personal upcoming or current retirement, contact our office in order to set a meeting.

Visit our website for additional information about our practice, free resources and more:

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LEARN MORE ABOUT: Retirement Pension Plans

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