If you're covered by a defined-benefit plan - the kind of pension that guarantees monthly checks for the rest of your life - you may be offered as many as 10 annuity choices when it's time to retire.
Which is best? Here's the best pension payout choice for six scenarios.- SAVINGS ARE SHORT. You and your wife haven't saved as much for retirement as you had hoped, so you'll have to rely more heavily than expected on pension and Social Security income.
Best choice: The joint-and-survivor annuity that would pay 75 percent or 100 percent of the amount you receive while you're alive, after your death.
Your widow might be severely pinched by the drop in income that comes with the standard 50 percent option.
- YOU'RE LIKELY TO OUTLIVE YOUR SPOUSE. You're leaving your job at age 62 so you can join your 65-year-old husband in retirement.
Best choice: The single-life annuity, which pays no benefits to the surviving spouse.
Statistically, you are likely to outlive your husband by five years, so the odds are good that he would never collect survivor benefits.
- YOU'RE IN POOR HEALTH. Although you'd like to work longer, you have to retire at 62 because of a weak heart.
Best choice: If you're married, take the joint-and-survivor annuity with the 100 percent option.
Chances are good that the unreduced benefits that your survivor will receive will more than make up for the larger pension reduction you'll take in the short run.
If you're single, choose "life with 10- or 20-years certain." If you die before receiving 10 or 20 years' worth of pension payments, your beneficiary gets level payments until the end of the period.
- YOUR SPOUSE IS AILING. You're retiring a few months early to take care of your wife, who has terminal cancer.
Best choice: The single-life annuity, with no survivor benefits. That will give you the maximum amount of income while she's still alive.
- YOU'RE RETIRING EARLY. You're retiring at age 55 and need a way to fill the income gap until Social Security benefits begin at age 62.
Best choice: The level-income, or "Social Security equalization," option, which is generally offered in early-retirement incentive programs.
It delivers bigger checks in the early years at the expense of smaller ones later on.