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Lump Sum? Annuity? What?

If you’ve read our 12 Keys to Retiring from SCE with Confidence, you’ve seen us make mention of the cash balance pension plan. It is a key part of your successful retirement from Edison, and we want to make sure you make full use of it.

Here’s the 411 (people still say this, right?) on the cash balance pension plan:

Your choices:

Lump Sum Option – The lump sum option is a one-time pay out of the balance of the pension. After you have been granted the lump sum, you are free to use it how you see fit, but if the funds are not rolled into a tax qualified account, such as an IRA, then a taxable event can take place.

Annuity Option – A fixed payment for the life of the annuitant (the one who receives the benefit) and a spouse.

SCE Annuity Options include:

  1. Spouse’s Pension – which provides the highest annuity payment to the retiree and the smallest benefit to your beneficiary on death
  2. 75% Contingent Annuity – provides a slightly smaller annuity payment, but an increased value to your beneficiary on death
  3. 100% Contingent Annuity – the beneficiary will receive the same benefit as the retiree when the retiree passes away, but this is the smallest annuity payment

What are the pros and cons?

Lump Sum Option

Pros

  • Flexibility in access and using funds
  • Defer taxes on income you don’t need
  • Ability to reinvest into the market
  • Legacy/Inheritance planning
  • Improves your net worth

Cons

  • Access to lump sum could create poor spending habits in retirement
  • Subject to market and investment risks
  • If not properly handled, can create a taxable event for retiree

Annuity Option

Pros

  • Guaranteed income for life of annuitant
  • Income options available for spouse after death
  • No market fluctuations
  • Opportunity to receive more benefit than the lump sum if you live long enough

Cons

  • If you don’t live long enough, you could not see the full value of benefits
  • Loss of control over timing of cash flow
  • Same fixed payment for life + No cost of living adjustment (inflation)
  • Income contingent on longevity of employer

 

Don’t go through the decision making process alone. Have a plan. Warren Street Wealth Advisors has helped hundreds Southern California Edison employees retire successfully. Whether you’re retiring this year or in 20, we can put you on the path towards success.

Contact us to schedule your free consultation today.

 


 

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Joseph Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.