Retiring From Your Cooperative This Year? Lump Sum or Monthly Pension?

Should you take your cooperative's monthly pension or should you take the lump sum?

Deciding between the monthly pension or the lump sum option is one of the most critical decisions of your financial life. Most importantly, it's a decision that can't be corrected later! Once you sign the papers, that's it. Sometimes the monthly pension is the right choice and sometimes it can be the single most devastating decision you can make for your retirement. Let's look at the options:

What is a monthly lifetime pension annuity offer?

A lifetime pension annuity offer is a monthly payment based on a percentage of your income history, current interest rates, and years of service. The payment will continue for your entire life or your spouse's life or for a certain time period or a combination of any of these. See my blog on annuity payment options in plain English here.

What is a single lump sum offer?

The lump sum distribution is a one-time payment from NRECA. You gain access to a large sum of money by taking a lump sum payment which you can then spend or invest as you see fit.

The thing I like to emphasize to potential clients about the lump sum offer is the flexibility and control that comes with taking this option. A 30 year retirement means more than likely facing many surprises with which a flat monthly payment isn't going to help.

The lump sum option, invested strategically and intentionally, offers flexibility to meet surprises, can provide regular income and, most importantly, could change the lives of the loved ones you leave behind.

Which option is the better deal?

That depends on your unique financial situation. I know that sounds like a cop-out but it really does depend on your unique situation. Remember when you're at the water cooler or break room at your co-op your friend may have the best of intentions by telling you to pick one or the other but that friend doesn't know your entire financial picture.

Also keep in mind that all a monthly pension annuity is doing is letting your company or plan provider just pay you back your money on an installment plan. Couldn't you take the lump sum and do the same thing yourself?

What if you took a lump sum option of say $1,000,000 this year and transferred it to an IRA and worked with a competent fiduciary advisor? Couldn't you create a monthly payment with that? Couldn't you invest it strategically based on your needs and goals? Couldn't you pass on the unused balance to your heirs, potentially changing their lives? Couldn't you withdraw different amounts at different times to buy that RV you always wanted or to take the family to Disney? I could go on and on but the answer to all those questions is yes, you could.

So which should you choose?

If we are just looking at this from a math perspective then right now, in 2022, taking the lump sum would be the best choice. However, retirement isn't just a math problem and as mentioned above, the choice will be dependent upon your unique financial circumstances. We can help you decide which is better for you based on your retirement goals.

At 80/20 Financial Services we create and manage retirement income and investment plans for electric cooperative retirees to ensure your 401k and R&S lump sum pension lasts the duration of a 20-30 year retirement and beyond.

Final thoughts

As humans, we worry about many decisions in our lives but almost all the decisions we worry about can be undone. Even if we choose wrong, we can fix it later. When choosing between the monthly pension and lump sum offer this is NOT the case. You can't change your mind later. You can't undo the decision.

At 80/20 Financial Services, in almost every situation, we believe that you, not the company you worked for, should be in control of your money. In the current interest rate environment there are very few instances where taking the monthly pension annuity makes sense. With the lump sum amount you have control, flexibility, options and security.

With the lump sum option you have control of your money and can make your own salary, flexibility in case of emergency or other financial needs, the option to leave a legacy to your heirs or to your favorite charity and you have security knowing that all of your money is in YOUR Individual Retirement Account (IRA).

You need a plan

At 80/20 Financial Services, we are retirement planners and we specialize in working with electric cooperative employees. We can help you answer questions like:

Should you take your cooperative's monthly pension or lump sum offer?
Do you have enough money between your R&S and/or 401k to retire?
Could you possibly retire at age 55?
Is your cooperative 401k invested correctly for your retirement goals?
Should you be investing in a Traditional 401k or a Roth 401k?
Are you contributing too much or too little to your 401k?
Should you quasi-retire from your cooperative?
Should you accept an early retirement offer from your cooperative?
When should you claim Social Security benefits?
How can you lower your tax bill in retirement?
How do you invest your retirement money so that you increase your income in retirement?
How do you create an income stream in retirement that is similar to when you were working?

I started this firm specifically to help electric cooperative employees with retirement planning. I worked for an electric cooperative for 11 years and I know your profession and benefit plans better than any other financial advisor will. You have excellent retirement benefits available to you. I can help you maximize those benefits while creating a retirement income and investing plan that aligns with your retirement goals.

For more articles about retirement planning and investing, click here. You may also sign up to receive our weekly retirement blog here.

Thanks for reading!

Brian Coleman-Owner/Advisor

80/20 Financial Services is an Independent Registered Investment Advisor (RIA) registered in the state of Missouri (CRD# 300772). We help electric cooperative employees in Missouri and throughout the United States transition into retirement. Being independent allows us to work exclusively for YOU.

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