Lump-Sum Buyout Decision Regarding Employee Pension Plan Requires Significant Thought and Planning

With the continued rise of the nation’s Retirement Income Deficit – a measure of the amount Americans have saved to date for retirement and the amount they should have saved – decisions about taking a lump-sum employee pension buyout should not be made without careful consideration.

Cary, IL – April 30, 2015 /MM-LC/ —

Increasingly, companies are offering its employees lump-sum buyouts to close out risky pension plans, but there are some things employees need to consider before they take the money and run, says an investment advisor and income planner who works with people facing that choice daily.

“It is our policy not to offer the same recommendation across the board, and everyone’s situation is unique,” says Lisa Bussenger, president and founder of the Cary, Ill.-based Bussenger Financial Group, which has been income planning for clients for 18 years and helping them retire with financial peace of mind. “The process begins by sitting down with clients to look at the total picture to assess what’s the pension payout going to be if they kept it with an employer or what’s the lump-sum payout going to be for that individual – and what benefits or negatives come with either/or. It’s never approached as a one-size-fits-all decision.”

The trend toward offering lump-sum pension buyouts and moving away from traditional pensions is increasing. According to benefit consulting firm Towers Watson, for example, by year-end 2013, only 24 percent of Fortune 500 companies offered any type of defined benefit pension plan to new employees. That number was down from 60 percent for the same group of employers in 1998. The shift away from traditional pensions has been fueled by factors including a desire to reduce retirement costs and a belief that such a shift reduces the sponsor’s financial risk as people are living longer, Towers Watson said.

Many of the clients coming through the doors of the Bussenger Financial Group seeking advice on the lump-sum decision are in their mid-50s and early 60s from major Chicago-area employers like Motorola, North Shore Hospital and Verizon. Often, Bussenger Financial Group income planners will sit down with clients to do extensive fact-finding sessions to assess where the client is now financially, where they’d like to be in about five years, how much they need for working income, and whether they have additional money, and where it’s invested.

“In some cases, someone may say we’ve been with an employer a pretty long time and expect to have a pretty high payout,” Bussenger said. “Sometimes a lump-sum recommendation may not be in the best interest of the client vs. the monthly payout they would get in the pension.”

Even so, she says the lump-sum payout is a good option for employees with the right financial profile to create their own retirement plan through alternate investments – like a fixed-index annuity – to give them more control of their money by determining liquidity needs vs. just opting for a monthly fixed paycheck. Wealth management experts like Bussenger see three major mistakes clients make who opt for the lump-sum payout:

Not having a written plan. – Many people don’t have a working plan of how money they have accumulated through multiple income streams, and how it will be managed or used to benefit them or their heirs long-term. “Clients on occasion come in with a pile of stuff with 15 statements – with money over here and money over there – and no idea of how to streamline all of it to make it work best for them after retirement,” she says.

Not understanding risk among the investments they have. – Closely related to not having a written plan is a lack of understanding among employees about the strategy behind why they initially invested in a stock, mutual fund or variable annuity, for example. “A lot of times we’ll ask, ‘So what was your thought process when you invested in X or Y?’ And they have no idea,” she says. “Without that level of understanding, they can’t fully realize what an investment can or cannot do, or how much risk is in that investment, particularly as people get close to retirement.”

Not understanding what a true income plan is. – Particularly for married couples, social security won’t be enough for people to live off of for many years post-retirement. Many employees need a systematic income plan so they don’t have to worry whether it’s the right time to sell something or a good time to buy. “We work with them to put a written income plan together, and we create different buckets, so that they know what’s their liquid bucket, what are they going to grab for an emergency, what’s their income bucket or growth bucket or fun money.

Other considerations for lump-sum buyouts include survivorship benefits and understanding what happens with the pension paycheck if one spouse dies, as well as considerations about catastrophic illness and how to manage financially through such calamity by having a contingency plan and understanding what happens with the pension payout should a spouse die.

Avoiding taking a haphazard approach to saving for retirement is critical as the nation’s Retirement Income Deficit rises. Five years after it was first announced, the RID has risen from $6.6 trillion to $7.7 trillion, the Pension Rights Center announced in March. The RID is the gap between what American households have actually saved to date and what they should have saved to date to maintain their living standards in retirement. The updated RID is based on projections of retirement income and wealth for American workers ages 30-60, using data from the 2013 Survey of Consumer Finances. The Center for Retirement Research at Boston College calculates the RID.

“The Retirement Income Deficit is one of the starkest illustrations of the retirement crisis we’re facing,” said Karen Friedman, executive vice president and policy director of the Pension Rights Center.

For more information about us, please visit http://www.bussengerfg.com

Contact Info:
Name: Lisa Bussenger
Email: lisa@bussengerfg.com
Organization: Bussenger Financial Group
Phone: 847-516-8062

Source: http://councilofeliteadvisors.com/liftmedia

Release ID: 80755