Lump Sum or Monthly Income
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Mayo Clinic and Fortress Financial Group are not affiliated
Choosing your pension payout option can significantly affect your financial security throughout retirement. This post explores the key factors to consider when deciding between a lump sum payment or a monthly income stream.
Understanding Your Options:
Lump Sum: With the lump sum, you receive your entire pension as a one-time payment. It offers flexibility, investment opportunities, and the potential to leave a larger legacy. However, it carries the responsibility of managing funds and ensuring their longevity.
Monthly Payment: This provides guaranteed income for life, including potential Cost of Living Adjustments (COLA) for pre-2004 benefits. It simplifies budgeting and offers peace of mind knowing you have a check arriving every month, but it lacks flexibility and the potential to leave a legacy.
Major Considerations:
Retirement Lifestyle: Do you prefer predictable income or the freedom to manage a lump sum? Analyze your monthly expenses and desired lifestyle to determine if a guaranteed income aligns with your needs or if the flexibility of a lump sum would be more appropriate.
Investment Expertise: Managing a lump sum effectively requires financial know-how. Lack of confidence in investing necessitates hiring a professional or carefully considering the monthly option.
Legacy Planning: If leaving an inheritance is crucial, the lump sum can facilitate that, but remember, careful management is necessary to ensure longevity.
Addressing the "Bus Scenario":
When discussing the Mayo pension, a bus always seems to be involved. I.e., “What if you get hit by a bus tomorrow?” While discussing untimely death is important, focusing solely on the "bus scenario" can lead to undesired outcomes. Consider planned and unplanned events like extended illness or economic downturns impacting your financial needs throughout retirement. The monthly income option offers survivor benefits. It is important to explore the available types (Life Only, Term Certain, Joint & Survivor) and their implications.
Beyond "Mailbox Money":
Instead of solely focusing on guaranteed income, “mailbox money,” it is essential to consider the long-term impact of inflation. Only benefits accrued pre-2004 receive COLA adjustments, and COLA adjustments are capped at a maximum of 1.5% per year. The Federal Reserve strives to keep inflation at 2% per year but is not always successful, as seen in 2022 when it was over 9%. The lump offers the opportunity to maintain purchasing power throughout your retirement journey.
Conclusion:
Ultimately, the best choice depends on your circumstances, risk tolerance, and financial goals. Please consult with a financial planner specializing in understanding the Mayo Clinic pension plan to develop a personalized investment strategy, review different what-if scenarios, and make sure you make a well-informed decision.
Disclosures
Fortress Financial Group LLC (“FFG") is a registered investment advisor and is not affiliated with Mayo Clinic. Advisory services are only offered to clients or prospective clients where FFG and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at https://fortressfg.net/. For current FFG information, please visit the Investment Adviser Public
Disclosure website at www.adviserinfo.sec.gov by searching with FFG’s CRD# 315329.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. For the most up-to-date information regarding your benefits, we encourage you to reach out to Mayo Clinic Human Resources. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.
The views in this page are the views of Fortress Financial and not the views of Mayo Clinic.
Mayo Clinic and Fortress Financial Group are not affiliated
