Tag Archives: Retirement Options

Back By Popular Demand: What’s the Best Payment Option?

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LAGERS offers several retirement payment options for you at retirement. And, believe it or not, there is not one option that is better than the other. In fact, the payment options themselves are designed to ultimately pay the same total amount to you or your beneficiary once both of you have passed away. That fact does not really help you make the decision as to which payment options you will choose. Because, while there is no better option than the other, there is an option that may better fit your needs in retirement. Here are some things you should be thinking about when determining which payment option you will choose.

Does my spouse have a pension of their own? Sometimes, both spouses have a pension. When considering your payment option, consider what retirement income your spouse will be receiving from his or her own pension. Depending on the circumstances, this may lessen the need for you to provide a monthly benefit for your spouse. Option A and Option B are joint survivor options that offer varying amounts payable to a spouse. For example, my wife is a public school teacher and if she works her entire career as a public school teacher will have a significant pension benefit when she retires. This may dictate the payment option I choose in retirement knowing that she will have her own pension income.

Do I want to provide for my children? Currently, there are a few options that allow for a non-spouse to receive a monthly benefit Under Option A and Option B, the beneficiary must be a spouse of two or more years or a person who is 40 or older and has received more than half support from you for two or more years. Also, Option C allows you to list someone other than a spouse as a beneficiary. Another way to provide for your children is through the Partial Lump Sum (PLUS). If you choose, the funds from the Partial Lump Sum can be directly transferred to a qualified retirement account (IRA, 457, 401, etc.). Once the funds are transferred, you can set your beneficiaries of the qualified account to also include your children. This is a way for you to leave a legacy to your children and / or grandchildren.

I don’t have a spouse or any children, what options do I have? As a single person, you have two options available to you. You may choose the Life Allowance which pays you the highest monthly amount and when you pass away nothing else is payable unless you have employee contributions remaining. If so, the employee contributions will be refunded to your beneficiary of record or your estate. The other option is Option C. It is the only option that pays a monthly benefit and allows you to list whomever you choose to be the beneficiary.  This would include a trust or charitable organizations.   And remember, you may be able to choose Option A or B if you are financially supporting another person that is at least age 40.

What if my spouse significantly younger than me? If you are choosing a spousal option, there are additional adjustments to the member’s benefit based on the age difference between you and  your spouse. Option A and Option B both have additional reductions to compensate for the spouse being younger. However, your younger spouse will still receive a benefit for their lifetime upon your death. So, you might think that the additional reduction is well worth a lifetime spousal benefit.

Can I take a piece of the partial lump sum to pay off my mortgage? One quick way to receive a sum of money to pay off unpaid debt is the Partial Lump Sum. However, you can’t receive just a portion of the lump sum. Also, if you receive the lump sum and deposit it into a checking account, it is fully taxable. So, if you need only a portion of the lump sum, you could choose  a direct rollover of the funds into a qualified retirement account. Once the lump sum has been transferred, you may withdraw only what you need from the account to pay off your mortgage. That way you are only taxed on the funds you withdraw and not the entire lump sum. Keep in mind, that when you withdraw from your qualified retirement account, the funds have the taxation characteristics of that account and your withdrawl will be subject to those characteristics. So, before doing anything like this, you should seek advice from a professional accountant or CPA.

As you can see, there are several different scenarios that could play out and several more that were not illustrated here. Bottom line: there is not one option that is the best. However, there may be an option that fits your needs better than the others. So, do your research, attend a seminar and make an educated decision.

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Jeff Pabst, CRC Senior Communications Specialist

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Single? You Have Options at Retirement!

Diner, Senior, CoffeeWhen presenting at a Pre-Retirement Seminar, many of the attendees ask me questions about what their spouse will receive from LAGERS once they pass away. There are a couple of options that married members may choose at the time of retirement that will pay to their spouse upon their death. Read this blog for more information about spousal options.  On the other hand, I do get some questions from single members wondering if they have any options. Don’t worry; even if you’re single, you have some options with your retirement benefit.

The options a single individual has to choose from at retirement are the Life Allowance and Option C. Also, the Partial Lump Sum can be added to each of those options. So, which one do you choose? When determining which payment option to choose at retirement, you may want to consider a few items:

  • What are your fixed expenses in retirement?
  • Do you plan to travel or pursue a hobby that will have an impact on your expenses?
  • Will you have additional sources of income?
  • Are you planning to leave a legacy in the form of inheritance?

All things to consider when choosing your payment option.

Now, let’s explain your options as a single person.

Life Allowance. The Life Allowance is the largest monthly benefit you can receive in retirement. But, when you pass away, there is no monthly benefit payable to a beneficiary. The only instance where there is something payable under the Life Allowance is when you have a balance remaining. This balance can be from the 4% contributions made at any point in your career from which you did not receive a refund or funds used to purchase service (if applicable).

For example, if you have $20,000 in employee contributions, the first $20,000 you receive in your retirement benefit is your employee contributions. Since LAGERS pays out your employee contributions through your retirement benefit, if you pass away before the total of $20,000 has been paid out, your beneficiary will receive a lump sum of the remaining contributions.

Option C. This option is called the 10 Year Payment Certain plan on your benefit estimate. This  can be somewhat misleading because it makes it sound like you will only receive payments for 10 years. There is no option that you could choose under LAGERS that does not pay you for the rest of your life. Option C guarantees at least 120 payments are made to you or your beneficiary in retirement. Specifically, if you pass away within 120 months after retirement, your beneficiary will receive the remaining payments until a total of 120 payments have been made.

For example, if you elect Option C when you retire and pass away 96 months in to retirement, your beneficiary will receive the remaining 24 monthly payments. But, if you live more than 120 months after retirement and pass away, your beneficiary will receive nothing under Option C.

Partial Lump Sum Feature. This feature can be added to the two previous options listed above. It pays you a lump sum 90 days after retirement that is equal to 24 months of your Life Allowance benefit. This option can be a great way to get a large amount of money early in retirement that you could use for many different purposes like paying off your mortgage, leaving a legacy for your children and grandchildren, or many other purposes. Also, you can roll your Partial Lump Sum into a qualified retirement account to delay the up-front taxation, potentially grow the funds throughout retirement, and set the beneficiaries of that account to whomever you choose. Read more about the Partial Lump Sum in this blog post.

So, as you can see, even if you are single, you have some options as to what to do with your LAGERS benefit at retirement. To get an in-depth explanation of your options, attend a LAGERS Pre-Retirement Seminar or call the LAGERS office.

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Jeff Pabst, CRC Senior Communications Specialist

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Retirement Planning Doesn’t Have to be Scary! We Can Help.

 

Ghouls and goblins will be knocking on your door this week asking for sugary sweets. Horror films will be played on a continuous loop on cable television channels, teenagers will be sneaking toilet tissue and eggs from their parents’ houses.  But maybe most terrifying of all, many LAGERS members will be preparing for retirement at the end of the year!  Oh, the horror!

A little dramatic, I know, but retirement is a truly terrifying new chapter in life.  I have seen the fear first-hand in hundreds of wide-eyed, soon to be retired, LAGERS members at seminars over the years.  The fear is real.  But it doesn’t have to be so frightening.  LAGERS provides several resources to help keep the retirement boogey man away from your door.

Pre-Retirement Seminars

Almost 1,000 people attend LAGERS pre-retirement seminars each year.  Nine out of ten folks that attend these seminars rate them as ‘Excellent’ and, more importantly, 99% say that they believe they have received adequate information to make informed decisions about their LAGERS retirement.  LAGERS staff conducts about 20 of these seminars each year across the state.  We offer full-day, afternoon, and evening meetings to accommodate anyone’s schedule. In addition to the regional seminars, we also conduct several smaller seminars where we travel to a participating employer and speak with that employee group.  Pre-retirement seminars are the best way to ensure you have all the information you need to make a sound decision about your LAGERS benefits.

One-on-One Counseling

LAGERS has benefit specialists on staff who are experts in all areas of LAGERS retirement.  Stop by our office (appointments are preferred) or conduct a counseling session over the phone.  We would love to walk you through the payment options, application process, and anything else related to LAGERS retirement!

Benefit Estimates

A benefit estimate is a document that shows your estimated retirement benefits based on a retirement date of your choosing.  This is different than your annual LAGERS statement because an estimate shows all of the payment options that are available to you. It is also more accurate as it is based on your most recent information.  You can get a benefit estimate by contacting our office, or you can generate as many as you want online using the myLAGERS web portal.

These estimates are extremely beneficial in retirement planning.  But you would be surprised how many people retire without ever requesting one.  “When I started at LAGERS 14 years ago, I was blown away by how many people retired without ever getting a benefit estimate from us!” said Tami Jaegers, LAGERS’ Assistant Director.  “Now, that has changed dramatically.  About 9,000 estimates were calculated in the last 12 months.  Staff did 4,400 and members did 4,600 online using myLAGERS. So members ran more estimates than LAGERS staff!  That is great!”  Great, yes, but there is still plenty of room for improvement.  LAGERS still sees far too many members retire who are seeing their benefit amount for the first time about two weeks before they walk away from work.  Now that is scary!

myLAGERS

The online myLAGERS web portal has been mentioned throughout this blog, and for good reason.  It is a great tool for retirement planning.  If you haven’t enrolled in myLAGERS yet, stop reading this blog and do so right now!  While the greatest feature (IMHO) is the benefit estimator, you can also change your beneficiaries, address, view annual statements, estimate service purchases, apply for benefits, and more.  And no need to worry about the security of this portal.  LAGERS hires a third party company each year to evaluate the security of our system.  This past year, LAGERS received the highest score possible for security of our system.  Your information is protected and secure with us.

Annual Statements

For members who are still decades away from retirement, the annual statement is a great way to help keep your retirement planning on track.  After all, your LAGERS benefit is not going to be enough to fully fund your retirement.  So the annual statement helps you know what your base monthly income will be so you can save additional funds for retirement appropriately.  It is also a wonderful annual reminder to do a little retirement planning check-up on yourself.

With these resources available, what is there to be afraid of?  We will help you every step of the way.  So go ahead and curl up with some popcorn and leftover Halloween candy and change the channel to a thriller on TV.  The LAGERS retirement process is one less thing to be frightened about.

 

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

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Three Things You Must Think About before Taking the Partial Lump Sum at Retirement

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To take the Partial Lump Sum or to not take the Partial Lump Sum?  That is the question.

The Partial Lump Sum, or PLUS, is an option available to LAGERS members at retirement.  The PLUS provides a retiree the choice to receive 24 monthly payments up-front, as a lump sum distribution.  Retirees choosing the PLUS will receive a reduced monthly benefit for the remainder of their life and that payment will begin immediately.  The PLUS can be chosen with any monthly payment option and can be rolled over into another eligible retirement account to delay paying taxes.  The monthly benefit is reduced by 16% for a member retiring at age 60.

The alternative to the PLUS is to simply choose to receive the full monthly benefit, without the up-front  lump sum payment and without the PLUS reduction.

For example:

Monthly Payment = $1,000

PLUS Amount = $24,000 (Monthly Payment x 24)

Monthly Payment if PLUS is chosen at age 60:  $840

 

How do you know what is right for you?  Each individual’s situation is unique and you want to make sure you make the best decision to maximize your retirement benefits.  It may seem like the easy choice to opt for the lump sum money, but you may be better off in the long run to choose the higher monthly benefit.  Here are some things to consider when deciding whether or not the take the PLUS.

 

1.  How long do you expect to live?

Are you a healthy person?  Do you always wear your seatbelt?  Does your family have a history of long-lives?  These are important questions to ask yourself when thinking about if you should take the PLUS.  Why?  Because if you live long enough, it may be best to leave the PLUS alone.  Some simple math can illustrate this.

PLUS ExampleLet’s look at two retirees of identical age and benefit amount.  The first retiree chooses to receive a $1,000 monthly benefit and does not choose the PLUS.  The second retiree receives a $24,000 PLUS and a monthly benefit of $840.  To make things easier, we will also assume no cost of living adjustments on the monthly benefits and that the PLUS amount is not invested so there is no return generated from this money.

As you can see from this chart, choosing the PLUS is advantageous for the first several years in retirement.  But look what happens at age 72.  The retiree that did not choose the PLUS but opted for a higher monthly benefit actually comes out ahead.

Now let’s look at the same two retirees, only this time we will add in a 2.88% annual cost of living adjustment.  Again, the retiree who chose the higher monthly benefit has more money, this time surpassing the retiree who chose the PLUS at age 70.

PLUS w COLA

Obviously, none of us know when we will expire.  However, we must at least try to estimate it so we can make the best possible decisions about our retirement income.

 

2.  What do you plan to do with the PLUS?

So you might by thinking, “Wait a minute!  I’m going to invest that PLUS and watch my money grow.  Then let’s see who ends up with the most money!”  Wonderful idea!  LAGERS members that wish to put their money to work have the option to directly roll the PLUS into another eligible retirement account.

This chart shows the 30-year retirements of three retirees. The green line shows the income for a retiree that chooses to re-invest the PLUS and receives a 5% annual return on that investment.    The blue line illustrates the growth of income for a retiree that chooses the full monthly benefit without the PLUS.  The red line is the retiree that chooses the PLUS but does not invest the money.  Each of these retirees receives an annual 2.88% cost of living adjustment.  Here, the retiree that chose to re-invest the PLUS starts out ahead and remains there over the entire 30 year period.

PLUS Invest Line Graph

I have heard several LAGERS members say they are choosing the PLUS to pay down debt.  This may be a good strategy since it is advantageous to enter retirement debt free.  Other members have said they will be using the PLUS to buy a toy, re-model their kitchen, or to take a dream vacation.  The main thing to remember about the PLUS is that it is YOUR money.  You earned it.  You get to decide what is best for you!

 

3.  Do you want to leave a legacy?

Another comment I often hear from members is that LAGERS payment options tend to favor married couples because there are options where payments continue to a spouse after the LAGERS member retiree passes away.  Members that wish to leave a legacy to someone other than a spouse may wish to use the PLUS for this purpose.  The PLUS can be rolled over into another eligible retirement account or you may receive the money directly.  If you choose to receive the money directly, the full PLUS amount will be taxable.  Once you have rolled the PLUS over or deposited it into some other account, you can then choose to whom the funds will be paid after your death.

 

Deciding whether or not to choose the Partial Lump Sum at retirement is an individual choice.  It is crucial not to simply pick the largest number on the page and assume that is the best option for you.  Thinking about how long you will live, what you will do with the PLUS, and if you want to leave a legacy are all important considerations when making this decision.

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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