Will that be one lump or many? Deciding how to receive your retirement plan payments When you retire, your employer may offer a choice of how you may receive distributions from your retirement savings plan. Depending on the policies of your employer's plan — either a defined benefit pension plan or one of a variety of defined contribution plans such as a 401(k) — you may have the opportunity to choose whether you want to receive the payout in one lump sum or some form of periodic payment plan. The choices sound relatively simple, but they are deceptively complicated because there isn't a "correct" answer — unless "it depends" counts. The reason the decision is so ambiguous is personal circumstances play a critical role. A periodic payment could be an excellent answer for one worker, but a lumpsum payment may be the best answer for another colleague. Whatever your decision, it may influence your financial future for the rest of your life, so it's best to do some research and seek advice from a qualified professional. Too many people end up following the same path as their friends and associates, which is a perilous approach, since your life circumstances may be completely different. Get familiar with your options Your first step should be to learn options available for distributions from your employer's plan. In addition to lump-sum-payments, they may include your choice of annuitization arrangements, other periodic distributions, simply leaving your money in the plan or a combination. Choosing to receive regular monthly payments for the rest of your life via an annuity sounds secure, but that could be misleading. First, you need to factor in the effects of inflation. Would the annuity payment adjust for inflation? If not, the purchasing power of your monthly check could shrink over time. Over a potential 30-year retirement, your once generous check may not even cover essentials. You also need to consider that annuities come with little flexibility or liquidity to modify your income stream should your needs change over time. Another consideration is the strength of your employer, particularly if you qualify for benefits from a pension plan. It's tough to predict if the company you work for will still be going strong in a decade, or two, or three. Yet, if you elect to accept monthly pension payments for life, you'll be depending on the health of your employer during your retirement years. If the company fails to meet its pension fund obligations, your pension could default to the Pension Benefit Guaranty Corporation, a government safety net that may not pay as much as your original pension amount. Your own life expectancy, marital status, access to other assets and many other circumstances should be weighed before opting to take a monthly annuity payment. So is a lump sum better? It depends. A lump-sum payment gives you control over your money, something you may or may not be comfortable with. Ideally, you could roll your lump-sum payment into an Individual Retirement Account, invest it, and expect to use the assets to generate your future cash flow stream. Unfortunately, the financial markets don't progress along consistent upward paths and expected returns are not guaranteed. You'll also, most likely, be investing a significant portion of your life savings, so your investment choices, as well as your spending choices, will be critical. Investing for the rest of your life requires discipline and planning. And remember, in retirement, your investments may need to be aimed at providing income, not just growth. When will you need to decide? If you still have decades to work, you probably think you have years to decide, but you could be wrong. Every day, employees face this decision because they are offered a severance package that requires a more immediate response. Make sure you are familiar with the details of your employer's retirement plans so you can make informed decisions. Making such a decision, at any stage in life, can be daunting, but assessment, evaluation and professional advice can help make it easier. Fund objectives, risks, charges, and expenses should be carefully considered before investing. A prospectus containing this and other important information can be obtained by calling (866) 676-7680 or by visiting this page on russell.com. Please read the prospectus carefully before investing. Copyright © Russell Investments 2007. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Securities products and services offered through Russell Financial Services, Inc., member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. First used: May 2008 RFD 08-0295			RELATED Articles IRA Rollovers Accounting for Required Minimum Distributions When to Tap Social Security   Printer friendly version of this page Send feedback or comments Site Search

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