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Personal and Business Banking

Choosing When and How to Receive Retirement Benefits

StreetWise Consumer Education Program

  • Summary
  • Article

Pension Plan Payout Summaries

With many retirement plans you can choose when to start receiving benefits and how those benefits are paid.

  • In most traditional pension plans you receive a specific monthly benefit for your lifetime.

    If you have chosen the "joint survivor" payout option, upon your death, your spouse will continue to receive a monthly benefit for the rest of his or her life. Your benefits begin at the retirement age specified in the plan documents. Your pension plan may allow for early retirement if certain criteria are met.

  • Some pension plans define the benefit in terms of an account balance.

    These plans are called cash balance plans. In these plans (and in some traditional plans) you may choose to receive the benefit all at once as a lump sum (with consent of your spouse) or as an annuity (monthly payment).

  • With a 401(k), in general, when you retire, the entire balance in the account is paid in a lump sum or by regular periodic payments (if your plan allows these).

    Distribution from your 401k must begin by April 1 of the year following the later of (a) the calendar year that you retired or (b) reached age 70 and 1/2.

Know What Choices Your Specific Retirement Plan Offers

The best way to know what choices your specific retirement plan offers is the plan's summary plan description or SPD. The SPD describes when participation begins in the plan, how service and benefits are calculated, when benefits become vested, when benefits start and in what form, and how to file a claim for benefits. If you don't have a copy of the SPD, you can request one from the plan administrator.

Consider Tax Consequences

How you receive your benefits also may have specific tax consequences to consider. For example, if you receive your benefits as a lump sum, you may be subject to higher income tax on the amount unless you take steps to minimize the tax burden such as the possibility of "rolling over" the payout into an IRA or other tax-deferred account within 60 days. Consult your plan administrator and tax or financial planning advisor about these issues.