Which pension funds should i choose

The agency guarantees that you'll receive the benefits you've earned, up to certain limits. The maximum amount is set each year by law. To check current limits, go to the Pension Benefit Guaranty site and search for "maximum monthly guarantee tables. By contrast, you can invest a lump sum for growth so that your retirement income keeps pace with inflation. If you roll over a lump sum into an Individual Retirement Account, you won't have to pay taxes on the money until you begin withdrawals.

In addition, you'll retain a stash of cash that you can tap in case of emergency. After you die, your heirs can inherit what's left of it. The big hitch is that you shoulder all of the risk of managing your money in the years ahead. You'll also incur investment costs, such as mutual-fund fees. Your expenses will be even greater if you hire a financial adviser to manage your money. And spend too much of your lump sum too soon or rack up disappointing investment results, and you could run out of money.

Want to read more on retirement? Visit the Consumer Reports Retirement Guide. If you have a pension and can choose between an annuity and lump sum, don't get hung up trying to calculate which option will pay you more over your lifetime.

To determine that, you would need to know two unknowable things: how long you'll live and how much your investments, if you go the lump-sum route, will earn.

It makes more sense to focus on your pension in the context of your overall financial plan. Start by asking yourself two questions:. To determine whether you should annuitize your pension benefits to help pay your recurring bills, draw up an estimate of your postretirement expenses. Also, get an estimate of the Social Security benefits you'll collect by using the Retirement Estimator on its site.

Social Security is like a private pension only sweeter because it's indexed for inflation. If Social Security will cover all or most of your bills, you might not need or want another annuity. Getting all the money up-front can relieve the worry that a retiree won't live to see future payouts. There are several types of annuity pension payouts to consider, each with pros and cons. Choose a single-life plan. This annuity generally results in the highest monthly payout.

But payments cease upon your death, and there are no benefits for the surviving spouse. Your spouse will be in a precarious financial situation if he depends on the income, making this an unsuitable option for retirees whose priority is income security for their spouse. Opt for a single-life plan with a certain term. Under this annuity, you receive payments for a preset number of years at a minimum, but they continue as long as you live.

If you die before the preset term, your beneficiaries will receive your payouts for the remainder of the term. This can be an appropriate option if your spouse is considerably older than you. With this annuity, you will get a payout for as long as you live. Monthly payments are lower than under a single-life annuity because you're covering both you and your spouse. However, you get the peace of mind of knowing that your spouse will have some form of income when you die.

Your monthly payout will be the lowest with this annuity that pays you as long as you live. This annuity provides the greatest measure of security that your surviving spouse will be income-secure in retirement. This example of a retiree's pension benefit distribution choices can help you determine which pension option is best for you:. Retiree Sara: Female age 62 with 30 years of service.

For instance, if you fancy putting money in Latin American emerging markets, you'll find a range of funds which can do that for you. Get a Self-Invested Pension Plan. The aim of the game is to diversify.

It's a big mistake to invest your entire pension in say, a single China fund. If the Chinese economy falters, your pension pot could fall in value dramatically with no other investments to offset the losses. So it's usually wise to spread your risks, and invest in different markets and regions. This is known as diversification. You could pick a collection of funds which give exposure to the UK, global and emerging markets as well investing in small and large companies.

You can also combine different themes by going for funds which invest solely in property shares or gold, for example. But remember the more concentrated the fund is, the more risky and volatile it will be.

So a good strategy is to mix things up a bit and then pick the strongest funds in each area you choose. That said, you should think about reducing your exposure to shares as you get closer to retirement. This minimises the risk of the stock market nose diving and destroying your pension pot just as you want to retire.

A single life annuity may also be a good choice for a retiree in excellent health who expects to have a long retirement. Joint and survivor annuities provide the best protection for your spouse or other beneficiary, while period-certain annuities may be the best option if you don't have a spouse to support but want to make sure that your kids will have a source of income in the years following your death.

Before making a decision about which pension payout option to choose, be sure to consult with your spouse and probably your kids as well.

This is a decision that will affect them as well as you, so it's only fair to at least hear them out before you decide how you want to claim your money. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price.

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