Before 401(k) retirement plans ever existed, many employers offered their employees pension plans. Maybe you even worked for a company that offered a pension plan before you started your own business. You work full time in and on your business, but maybe you’re thinking that it would be nice to have a little extra money coming in from that old pension plan. If you’re that business owner, and you’re wondering, “What do I do with an old pension?” continue reading. I have information to share with you.
If you worked for a company or institution long enough to qualify for its pension plan benefits, then you will eventually reach an age of eligibility. Upon retirement, the company you worked for will pay you a pension – a monthly payment similar in size to the salary you received during the years you worked – until you pass away. Whenever you reach the eligible retirement age (specified by the pension plan’s guidelines), you will have pay-out options. You can take fixed, equal payments over the course of your lifetime, or you can take a lump-sum payout.
If you choose the equal payment option or the fixed annuity option, you have more choices to make:
If you reach the age of eligibility and you don’t want to receive fixed payments over the course of your remaining years, then you may choose to take a lump sum payout. In this case, the pension company will calculate what would have been paid to you over your (assumed) lifetime. Then, they’ll take an assumed interest rate and calculate what they would have paid you over that time. Finally, they will give you the calculated amount of money all at once.
Both the fixed annuity and the lump sum pension plan payment options have pros and cons.
So what do you do? If you have a pension AND you’re a working business owner, what should you do with it?
If you’re a business owner and you have a pension, your rules are different. You’re not playing in the same sandbox as non-business owners. Therefore, it behooves you to speak to a financial planner. Run the calculations and see when and how you need to take income from the pension.
For more Cash Flow-related articles dealing with Business Owners’ finances, visit the Cash Flow category.