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Wednesday, February 06, 2013

Pensions: Let's Do this Again 

Here’s a story you can expect to see even more of over the next a few years - Ford is beginning to offer retiree’s that have pensions a buyout option on those pensions. (Source: Market Watch)

What exactly does this mean?

It works like this. Suppose you're retired from Ford and you are getting a monthly pension. Ford comes to you and states that if you prefer, they'll replace your pension with a lump sum of money. You may either choose to keep receiving your pension or you can take the lump sum.

Why is Ford doing this?

It’s very simple. People are living longer, and longevity represents a significant risk to pension funds. Ford is attempting to transfer some of that risk away from them towards the retiree. It’s a real problem for businesses that have pension plans, and Ford is the first company I’m aware of to begin taking action to address these types of risks.

You could bet that other companies are watching how this process unfolds very closely. Like Ford, they would LOVE to get out of the pension plan business, and if this approach by Ford works to any degree, you can bet they’ll follow suit.

The key point for you is that if you're retired, and you receive a pension buyout option, you will want to think very carefully before you take that option. It may make all the sense in the world, or it may be the worst mistake you can make. This is definitely one of those areas that you want to sit down with your financial advisor before you take action. Your retirement security could be at stake.

Matt Golab

Matt is an Investment Advisor Representative and the Chief Advisor of Aaron Matthews Financial Resources headquartered in Elk Grove, CA.Just click here for more information on Matt Golab!

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