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Redrick Terry: It is that time for For Your Money. We’re joined by John Nelson with NelsonCorp Wealth Management. Good morning, John.
John Nelson: Hi, Redrick. We’re happy to be here.
Redrick Terry: Absolutely. Glad that you’re here with us today. Let’s talk about retirement. A rewarding time for individuals but it does bring along many questions and decisions. Seems to be common for companies to offer lump sum pension options. Ah, for those who don’t know, could you explain what those are.
John Nelson: Yeah. So, lump sum pension options, um, have been a trend for quite some time and continue to be. Um, it’s where companies who have commitments to, uh, employees who have worked there for quite some time. A guaranteed pension, um, through retirement. Um, they’re getting some of the liability off their books. Um, so to speak, by offering these lump sum pension options. And they’re doing that for a number of reasons.
Ah, people are simply living much longer than they, they once did. Where people, ah, are on these 10, 15 years at some points and now we’re seeing people 25, 30 years, ah, drawing benefits and others, ah, being big market, um, movements that have affected these pension plans over the years, Ah where their, ah, optimistic ah, forecasts haven’t been met. Um, so a lot of these pension plans have gotten kind of behind and it’s very difficult for them to recuperate, um, with, with where markets are right now.
Redrick Terry: Certainly. So, you talk about the lump sum option, ah are there tax consequences in taking that?
John Nelson: So the, um, best strategy usually is to simply rule that into your self-directed IRA. Um, if they’re handled correctly there are no tax consequences, ah, in doing that. Um, the tax would come into play when distributions are ultimately made from that IRA. Um, but if handled correctly there should be no tax or penalty, ah, involved in that.
Redrick Terry: So we’re talking about the decision overall how does it fit in with overall retirement planning?
John Nelson: Yeah, that, that’s really where the action and focus should be. Um, making sure, um, things line up, there’s, there’s ben- there’s pro’s and con’s to both obviously. Um, having the guaranteed income throughout retirement is a big deal for many ah, retirees. But, looking at the numbers, seeing what makes sense and how aggressive a lot of these employers have become in getting rid of that liability. Ah, it takes a lot of planning and stepping back to look at the numbers to see if that decision makes sense for an individual or not.
Redrick Terry: Very important decision to make. John, thanks so much for joining us.
John Nelson: Thank you, Redrick.
Redrick Terry: Of course. And if you missed any part of our conversation we’ll make it available to you. On OurQuadCities.com
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