Lump sum pension buyout advice for former employees

The Buffalo News is offering a special one-time lump sum benefit offer for certain employees who left the newspaper but have yet to start collecting their pension. 

The one-time option to receive a pension benefit in a single payment will be offered from Sept. 15 to Oct. 31. The lump sum is calculated in accordance with Internal Revenue Service requirements for interest rates and average life expectancy assumptions.

For the News, the offer is an opportunity to reduce long-term costs for administering the pension plan, said Richard Walker, benefit manager at The News.

A decision to take a lump-sum pension buyout will vary, depending on the circumstances of each individual. 

The Buffalo Newspaper Guild asked Richard Schroeder, a certified financial planner with Schroeder, Braxton & Vogt Inc. and a former News business reporter, to offer general advice, but anyone who received the offer should probably also seek individualized guidance.

 Here’s what Richard and his colleagues had to say:

Does it make sense to consider taking the Lump Sum offer?

 Perhaps yes if:

  • You have a short life expectancy.
  • You want to leave retirement assets to your children.
  • You have investment expertise.
  • You plan to hire a professional investment advisor.
  • You have high tolerance for investment risk.
  • You are concerned about high inflation over your retirement.
  • You will have other pensions or income sources in retirement.

 Perhaps no if:

  • You worry about outliving your assets.
  • You have a long life expectancy.
  • You do not plan to leave retirement assets to anyone other than your spouse.
  • You do not have investment expertise and don’t want to hire a professional investment advisor.
  • You have low tolerance for investment risk.
  • You have other substantial retirement assets, such as a 401k, IRA, or 403b.

 Action Plan

1. Evaluate your personal financial situation

2. Determine your priorities

3. Make your decision

 Situation #1

 John is married, his wife is six years younger than him and they have no children.  His wife has $200,000 in a 401k and John has $100,000 in a 401k.  Neither have any other pensions.  Both will receive Social Security.  John has a low risk tolerance, is in a low tax bracket, both are in great health and have longevity in the family.  John plans to leave all his retirement assets to his wife.

 Suggestion: Keep the pension and refuse the buyout offer.

 Situation #2

 Tim is single, has high blood pressure and has a family history of heart disease.  He has no spouse but he does have two children and is active in the Boys & Girls Club of America.  He has a high tolerance for risk and is concerned about inflation over his retirement.  He plans to work part-time in retirement for extra income.

Suggestion: Take the lump sum offer, roll it over to an IRA and invest it.

General Advice: 

  • Consider your financial situation and that of your family before making the decision.
  • If you take the lump sum, roll it over to an IRA to avoid paying substantial taxes now.
  • If you keep the pension, be mindful of how harsh the benefit decrease is for taking the pension earlier than 65. Consider delaying benefits until you are 65. 

This pension buyout guide was provided by Schroeder, Braxton & Vogt Inc.,1412 Sweet Home Road, Suite 7, Amherst.