Getting Your Due - retirement - Brief Article

Kiplinger's Personal Finance Magazine, August, 2000 by Mary Beth Franklin

RETIREMENT | Make the RIGHT CHOICE between an annuity and a lump-sum payment.

AS IF deciding whether to accept an early-retirement buyout package weren't tough enough, add this to the dilemma: If given the choice, are you better off taking the money in fixed annuity payments or as a lump sum to invest? All things being equal, your decision will depend on personal preference. Do you want the security of a steady stream of income for life, or would you prefer the potential rewards--and risks--of handling the money on your own?

But here's the treacherous twist: Senator Tom Harkin (D-Iowa) says things are not always equal. He has called for a government investigation of whether companies tell the whole truth about annuity and lump-sum options, particularly when early-retirement incentives may be built into the annuity deal but not into the lump-sum alternative.

How do you know if your company's offer is fair? Start by asking your benefits coordinator to explain what is included in each option and what you may be giving up (such as retiree health benefits or cost-of-living adjustments) if you take a lump sum. Here's a tip: If the annuity includes a cost-of-living adjustment, grab it.

Pension lawyer Cindy Hounsell of the Women's Institute for Secure Retirement, in Washington, D.C., suggests you contact several insurance companies to find out how large a monthly annuity payment your lump sum would buy. If their annuity quotes are higher than your employer's offer, you may want the lump sum. If your employer's annuity is much larger, it may be an indication that early-retirement subsidies make it a better deal than the lump sum.

A pension actuary can help you figure out if there's been a miscalculation of your benefits. But before you hire one, gather all your facts and documents so you don't end up paying a professional by the hour to do your homework. The Pension Rights Center (202-296-3776), in Washington, D.C., maintains a list of actuaries willing to assist you with complex pension calculations, and may be able to refer you to one of the Administration on Aging's ten regional pension-counseling projects, which offer free help.

Another option: The National Center for Retirement Benefits Inc. (800-666-1000) will investigate retirement benefits on a contingency basis up to six years after retirement. If its pension detectives recover additional money for you, it keeps 30%.