The Truth About Private Retirement Pension

I imagine that most people reading retirementquotethis will end up never spending the principal of their retirement nest egg for fear of running out of money.  At some age, well into those retirement years, you will realize you are too darn old (you have everything you want and your spending is greatly reduced) to spend all that money if you tried.  I think deferring all that you could have done with that money when you were young and healthy only to never enjoy it in retirement is a shame and can be corrected with some good planning. One tool you may want to consider is creating a private pension.

Receiving a retirement pension is entirely up to you.  That’s right, you can create your own pension using your own money.

A pension is simply a stream of income at retirement that usually lasts for your lifetime, often times with a survivor benefit for your spouse.

The income generally comes from a contract with an insurance company. Contractually, you give the insurance company a lump sum of money and based on your age and gender (survivor’s included if there is a survivor benefit) they make a promise to pay a fixed income over the lifetime(s) of the beneficiaries. The promised payment is most influenced by the age or thereby life expectancy (current health is not a factor) of the recipients.  The longer the insurance company expects to pay out (actuarial tables) the lower the payment will be.

The insurance company’s payment to the beneficiary is a combination of interest and principal.  Therefore, it’s much greater than an “interest only” payment from an investment would be.  The difference is that when the beneficiaries have died, the contract ends and there is nothing left to be passed on.

The advantage is a SIGNIFICANTLY larger stream of income (you get to spend and enjoy the principal from the nest egg you accumulated) with the peace of mind that you cannot outlive the payments. The downside is that it won’t be part of your legacy and pass to your heirs.

Of course everybody’s situation if different, but you should discuss this option with your Financial Advisor.


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