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Overcoming rollover fears and anxieties
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Dear B.R.,
The information you provided about your options was not enough for me to go on. So I tapped the expertise of financial planner Leslie Corcoran of Family First Financial Planning in Stuart, Fla. She figures that the way you came up with 6.33 percent was by taking the monthly payout amount, for example, $527.50 a month on a lump sum amount of $100,000, and coming up with a yield. ($527.50 times 12 divided by $100,000 = 6.33 percent).

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"It's not a true rate of return, as you are getting back principal," says Corcoran, who believes you are comparing the 6.33 percent with what you could earn in a CD or money market (i.e., 5 percent). While the 6.33 percent may look more attractive, the lump-sum option will give you the earnings plus the principal to draw upon, she points out.

Do you think you can put the lump sum in good investments and withdraw it in small enough increments to make it last not only for your lifetime, but for that of your wife? That would really depend on how big the lump sum is and how much income it can generate for you. The financial literature says your withdrawal rate shouldn't exceed 4 percent to make your money last. But the annuity option is an important consideration, especially for spenders or individuals who are not particularly savvy with finances.

If you're leaning toward the annuity option, you need to look at what happens to annuity payments for your spouse in the event you predecease her. The spousal payment amounts can range from zero to 100 percent of your payments. Also, some annuities can increase with inflation or offer a guaranteed benefit for a specified period, such as 10 or 20 years.

"I like the 100 percent spousal benefit (for life) and a guarantee period of at least 10 years," says Corcoran.

The guaranteed benefit means your heirs will get payments for the specified number of years, in the event a tragic accident should take both your lives as soon as you start taking payments.

"This offsets the feeling of losing out on the lump sum. Surprisingly, the difference in the amount of monthly payment often doesn't vary dramatically with a guarantee," she says. "With an inflation option, it will cut the payment significantly."

As an alternative, you might consider taking the lump sum and purchasing an immediate annuity from an outside provider such as Vanguard or Fidelity, whose payouts are sometimes better, she says. Just be sure you buy the annuity from a high quality company that will be around for the next few decades.

As for pension safety, once you begin collecting payments, you shouldn't have to worry about losing the pension under current law. Even if the company files bankruptcy, the Pension Benefit Guaranty Corp. would step in and take it over. Unless you're expecting to get payouts in excess of $45,000 annually, your pension payouts shouldn't be compromised. Congress has been working on a pension reform bill for the past several months. While the rules keep changing, pension payouts will likely remain sacrosanct for retirees who are already collecting a check.

 
 
Next: "How do we get our money away from this institution?"
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