Defined Benefit Pension & Annuity

Your question is difficult to answer because you do not state the other options your spouse was offered.

If an annuity is your spouse's only tax-free option, then your choice is simple. An annuity is very conservative, and there are very few people who invest in annuities who lose their money. The downside to annuities is just that -- there is a very little upside return potential on an annuity. Typically, annuities are contracts for a year or more, which locks the account owner into that path for the duration of the annuity.

If your spouse has the option to roll the balance of the pension into an IRA, I would consider that a better option for two reasons -- time and flexibility. Let us say for the sake of argument rolling the pension into an IRA is an option offered. Once in an IRA, the account owner has the option to move the money into whatever investment he or she desires. If the owner is willing to live with a high-reward, high-risk investment, he or she can put all or some of the money into a high-flying mutual fund that invests in stock. If the account owner is more conservative or closer to retirement, then the IRA funds can be directed into bonds. Because an IRA is self-directed, the account owner has the time to ponder the risks and potential return on myriad investment options. Or, he or she may consult with an investment adviser on how to direct the IRA.

There are other benefits as well. IRAs have clearly defined rules for when the account holder can access the funds without penalty. Also, if the account holder is ever in an emergency situation and needs to access the funds, he or she can do so. This may not be the case with an annuity.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com