Your Cooperative Annuity Payment Options Explained In English
You may be considering retirement from your cooperative this year. Most cooperatives that participate in the NRECA plan provide you with an annuity option, lump sum option or some variation of both options via your R&S pension plan. If you are not familiar with annuities and their payment options the choices can be complicated and confusing. I'm going to list the usual options with plain definitions that are easy to understand in hopes that it can help you make an informed decision.
Important: Once you take the annuity option from NRECA you CANNOT undo that decision.
If the thought of guaranteed income is appealing to you, which is why most take the annuity option from NRECA, please remember you can take the lump sum and buy an annuity in the open market or you can work with an advisor to create a retirement income plan with your R&S lump sum option. Find an advisor you trust to walk you through the choices.
Personally, in most circumstances, I believe if you worked at a co-op for 20 years or longer that YOU should be in control of your retirement money.
I'm not telling you what to do or what to think, but just keep that in mind when making this choice because there are no second chances.
Here are the most common annuity options from NRECA simply explained.
Annuity Payment Options Explained In English
Life Only Annuity-When the cooperative employee dies the annuity payments stop. Period. End of story. This will always be the highest monthly payment you can receive.
10 Year Certain & Life- Payments are guaranteed for a minimum of 10 years or as long as you live. If the cooperative employee dies in year 1 after retirement, annuity payments will be made to your beneficiary for 10 years after the last annuity payment was made before your death. Typically, this is the 2nd highest monthly payment you can receive.
Life Only Cash Refund-When the cooperative employee dies the beneficiary will receive the Death Benefit minus the annuity payments received. Ex. If your lump sum amount is $300,000 and your Life Only Cash Refund Annuity payment is $2,000 per month and you live 10 years after retirement your beneficiaries will get... $300,000-$240,000=$60,000. This is typically the 3rd highest monthly payment you can receive.
50% Joint and Spouse- When the cooperative employee dies the monthly annuity will pay 50% of the original dollar amount and will continue to the spouse until they die and then annuity payment will stop. This is typically the 4th highest monthly payment you can receive.
50% Joint and Spouse Cash Refund- When the cooperative employee dies the monthly annuity will pay 50% of the original amount and will continue to the spouse until they die and then any balance will go to the designated beneficiary. This is typically the 5th highest monthly payment you can receive.
75% Joint and Spouse- When the cooperative employee dies the monthly annuity will pay 75% of the original amount and will continue to the spouse until they die and then annuity payment will stop. This is typically the 6th highest monthly payment you can receive.
75% Joint and Spouse Cash Refund- When the cooperative employee dies the monthly annuity will pay 75% of the original amount and will continue to the spouse until they die and then any balance will go to the designated beneficiary. This is typically the 7th highest monthly payment you can receive.
100% Joint and Spouse- When the cooperative employee dies the monthly annuity will pay 100% of the original amount and will continue to the spouse until they die and then annuity payment will stop. This is typically the 8th highest monthly payment you can receive.
100% Joint and Spouse Cash Refund- When the cooperative employee dies the monthly annuity will pay 100% of the original amount and will continue to the spouse until they die and then any balance will go to the designated beneficiary. This is almost always the lowest monthly payment you can receive.
Whew!!! You still awake? Exciting stuff isn't it?
Should You Take The Annuity Option?
This will depend on your unique financial situation at the time of retirement. Deciding between the annuity options or the lump sum option is one of the biggest financial decisions of your life and once it's made it can't be undone. You can't change your mind later! We believe it's worth getting a second opinion on and we would be honored to give you that second opinion. Contact us today!
You Need A Plan
A goal of retiring - without a plan - is simply a plan to run out of money. At 80/20 Financial Services we specialize in helping cooperative employees plan their retirement. We can show you how to turn your 401k and your R&S lump sum into a stream of income just like when you were working while also helping you achieve your desired financial outcomes in retirement.
If you are retired or nearing retirement, we can create a plan which will outpace inflation and accomplish any other retirement goals you might have. The consultation is free and without obligation. Contact us to set up a consultation.
For more articles about retirement planning and investing click here.
Brian Coleman/Electric Cooperative Retirement Specialist
80/20 Financial Services is an Independent Registered Investment Advisory Firm. We help Electric Cooperative Employees create their retirement income and investment plans.
Photo by Victoriano Izquierdo on Unsplash
