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The pension slides draft 1
- 1. Understand Your Pension Options Presented by The Athena Group Income Stream or Lump Sum? Diane Young, President Rick Ferguson, Executive Vice President Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. The Athena Group is not affiliated with Royal Alliance Associates and is not a broker dealer
- 2. Agenda Critical Factors to consider What are the risks of a lump sum option? Is my lump sum a fair offer? Is this right for me? Next Steps
- 3. Critical Factors to Consider What is a Pension? Why is a Lump Sum being offered? How long is my “lifetime”? Is a “legacy” important to me? What are my spending habits?
- 4. What is a Pension? $ Investments Investments Investments $ X Pension Checks for the Rest of the retirees life $ $ $
- 5. Why is buyout being offered? $ Investments Investments More retirees $ Investments living longer Pension Checks for the Rest of the retirees life $$ $ $ $
- 6. What are the risks of a lump sum option? Mortality Risk Investment Risk Income Tax
- 7. How long is my lifetime? There could be as many as 1 million people over the age of 100 in the US by 2050 (There are about 72,000 now)* Average mortality today is 75 for men and 80 for women (US ranks 34th in the world- right before Bahrain!)** Smoker, health history, family history * The Centurion Report ** CIA Report
- 8. What are my spending habits?
- 9. What are the benefits of a lump sum option? Flexibility Ability to plan a legacy More investment options
- 10. What about a legacy? Pension streams end when the pensioner or their spouse passes If you have other assets to live on, do you want to leave this to grandchildren or a charity?
- 11. Is my Lump Sum a fair offer? Example: 47 year old former worker- $1,000 a month at age 65 $130,000 is lump sum needed to replace a future income stream
- 12. Now What? IRA Rollover Develop a conservative investment strategy Make sure to understand tax implications for taking the money out before 59 ½ Beware of bad sales people just selling you a product
- 13. Is this right for me? What are my cash flow needs What is my life expectancy? Can I manage money?
- 14. The Athena Group, LTD Independent Financial Services Firm We work for our clients, not a large corporation We are planning focused- not product focused Local based firm
- 15. Next Steps Call us: The Athena Group Diane Young or Rick Ferguson (248) 453-5252 eMail us: Diane Young diane@TheAthenaGroupOnline.com Rick Ferguson rick@TheAthenaGroupOnline.com Visit our website: www.TheAthenaGroupOnline.com Securities offered through Royal Alliance Associates, Inc., member FINRA/SIPC. The Athena Group is not affiliated with Royal Alliance Associates and is not a broker dealer or registered investment advisor.
Editor's Notes
- Hello my name is Diane Young and I am the president of the Athena Group, an independent financial services firm in Rochester Michigan. Today, Rick Ferguson, my associate and I are going to spend a few minutes helping you understand the lump sum options you have been given
- AgendaCritical Factors to considerWhat are the risks of a lump sum option?Is my lump sum a fair offer?Is this right for me?Next StepsRead
- Read Slide
- In the 1940 and 50’s companies would offer perks to employees for retirement. If they work for so many years they would get a stream of income in retirement- this was called a pension plan. A company would set aside money each year to fund that future obligation. If the investments in the pension fund did well the company would not have to pay as much money into the fund. When the worker died, the money not paid out goes back into the fund for the other pensioners
- So why are companies like Ford offering lump sum buy outs?Well, the money they can spend on these types of plans is dwindlingThe investment returns and interest rates have not done so well.And workers are living longer so the plans are paying out more than anticipatedThis is why a company wants to reduce its liability by offering incentives for retirees and former workers. And while this may be good for the company- you need to know for sure if it is right for you.Several years ago as a early retiree form GM I went thru the analysis to determine if I was receiving a fair offer. And my analysis told me that the lump sum was a better offer because I was confident I could manage the investments and the risk better than they offered. However there are a lot of other that need to be considered before you make the decisions and what worked for me may not work for you. Diane what other things should people considers.
- There are several factors you should consider when making this very important decisionFirst is mortality- how long do you think you are going to live. Most people underestimate how long they are going to live in retirement. Studies show that the average 62 year old non-smoking couple- that one of them will be alive at age 92. that is a long time. While we do not know for sure how long we have on the planet, we can make some assumptions based on your health and family history. But if you want to be as conservative as possible you should plan to live to 95.Second, how much do you need to live on in retirement? If this pension income was everything you had for retirement a lump sum may not be the best option. But if you have other resources for retirement and you want to maximize your options, then a lump sum can give you greater flexibility. For some people being able to leave a legacy to children or grandchildren is important and a lump sum rolled over to an Ind. Retirement Account other known as an IRA would offer you more options.Taxes are an important consideration as well. If you just cash out your pension you could face serious tax consquences.
- Read Slide
- Another thing to consider is how well you are at managing money. Do you spend every dime that is in your pocket? Have you ever received a lump sum before? Perhaps a small inheritance? If you did and you ran out and spent it right away- a lump sum option may not be in your best interest. It takes a lot of planning and fortitude to not touch money that you need for the future.Perhaps you are like Scrooge McDuck and you still have the first dollar you made. You may be more successful at managing a large sum of money than someone else.
- Read Slide
- For some, leaving a legacy to their heirs is important. A Lump Sum would allow you more flexibilty in this type of planning
- So based on those considerations- is the lump sum offer you received a good deal? We have developed a tool to help people with that decision. We take the numbers you are given from Ford and based on unisex mortality tables and the governments required interest rate assumption, we can tell you what the lump sum would be. If the offer you have received is higher than that, then it means the lump sum is a fair offer. Of course- then you have to consider all the other issues to see if it is the right decision for you.For exampleLet say you’re are a 47 year old and your pension at 65 would be $1000 a month for the rest of your life. Based on typical pension lump sum calculations you should receive a lump sum of $130,000. What that means is, you should be able to take that lump sum, invest it and at age 65 generate a stream of income until your assumed mortality. It does not assume you are just taking income off of that number. You are spending some of the principle. Now if you die sooner than your assumed mortality, you may have some money left in the account to leave to your heirs. If you live longer, you may run out of money. That is why it is so important to make sure you make the right choice for your situation.
- What would happen next is you will roll the money into an IRA. This is very important because you do not want to take the lump sum in cash as it will now be 100% taxable and if you are under 59 ½ it could even be subject to a 10% early retirement penalty. So this needs to be done carefully.Even if you plan on using the money for immediate purposes you would want to do this so you can control how much you take out and hopefully spread it over a few years and reducing your tax bill.Once you roll it into an IRA you need to develop an investment strategy that meets your goals. I believe it is important to work with someone who really understands your needs and isn’t just out to sell you a product. There are many people out there who will try to take advantage of this situation- work with someone who has a good reputation, has a planning background, and is focused on your goals, not their product.Generally, you are going to want to focus on investments that are more conservative because this is money that you absolutely need to have for retirement. You may want to consider options that include guarantees of some sort. However, make sure you understand all the costs and charges involved with any type of product.
- Each one of you will have a different situation. You should consider all your option carefully.We want to help as many people make the right decision. We have developed a simple process that will allow you to have the tools you need to understand your options. Please feel free to call us to review your options.
- You can reach us a 248-453-5252 or email me at rick@theathenagrouponline.com or diane@theathenagrouponline.com you can also check out our website at www.theathenagrouponline.com Thank you for time and good luck!