Level Payment Pension Plan Option

level payment

Photo credit: jb

When you approach retirement, if you’re fortunate enough to have worked in a job that provides a pension plan, you are faced with a decision: what type of payout should you choose? There are generally several – the first choice is between a lump sum versus an annuitized payout

The lump-sum works just like it sound – you get the equivalent of your account in the pension system in one big lump – and you can rollover this lump sum into an IRA or other tax-deferred vehicle, taking distributions as you see fit over your lifetime. At some point (age 72 for most cases) you’ll be required to take distributions from your account.

On the other hand, an annuitized payout is where the money comes to you in a (generally) set amount over your lifetime, rather than all at once. And with the annuitized option, you often have several choices to consider – such as an annuity based solely on your life, or one based on your life and the life of a potential survivor of yours, most often your spouse.

There’s also often an option to receive the pension payments over a specified period of time, regardless of whether you live that long or not. These options are generally either 10-year payments or 20-year payments. With this plan, you (and your survivor if you don’t live that long) will receive payments for either 10 or 20 years in a set amount, after which the payments cease.

Another, less common, type of pension payment option is known as the level payment option, which is the topic of this post.

Level payment pension plan option

With most of the annuity payment options, once your benefit payment amount is determined, unless there is an inflation adjustment factor built-in, your payment remains the same during your lifetime. For the survivor options, the payment might change after you pass away – such as with the joint-and-50% survivor option, where you receive one payment amount during your lifetime, and your surviving beneficiary receives 50% of that amount once you die.

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