How do you get a pension buyout?


Quick Answer

To receive a pension buyout, a person needs an offer from an employer, notes Forbes. Companies and organizations looking to decrease long-term pension liabilities offer their employees the option of taking a lump-sum pension as opposed to monthly annuities.

Continue Reading

Full Answer

A pension buyout is issued at the discretion of an employer. In other words, a current or former employee must be offered the option to receive a lump-sum pension buyout, explains CBS News. A cost-benefit analysis should be performed to determine if the pension buyout is worthwhile. Factors such as taxes, market volatility and life insurance should be considered. The lump-sum payment is usually calculated as the net present value of the monthly annuities, notes Forbes.

If choosing a lump-sum payment, a person should find ways to invest the capital, states CNN Money. A person taking a lump-sum payment should have additional income streams, whether it is through a brokerage or from the pension of a spouse. The availability of pension insurance also impacts the decision-making process. For instance, a bankrupt employer may not be able to issue pension payments. In this case, pension insurance guarantees that an employee or retiree still receives payments, notes CBS News. The pension is then paid from the insurance agency as opposed to the employer. Without pension insurance, a lump-sum buyout is more attractive because there is no risk of losing the pension benefit.

Learn more about Financial Planning

Related Questions