Fewer and fewer companies are offering pension plans these days, which means fewer and fewer people are having to make the decision those of you who elected to freeze your UCRP (TCP2) are facing.
The questions looming in front of you are: First, do I take my UCRP as a monthly income stream or a lump sum cashout? And secondly, when should I take it?
With the monthly income option, you are guaranteed a check from UC every month for the rest of your life. (In most cases, you simply must be over the age of 50 to begin taking the monthly income.) The income amount is determined by a number of factors: primarily your age, the number of years you have worked for the lab/UC, and your highest compensation while with the lab/UC.
If you choose the lump sum cashout option (likewise, you must be over the age of 50), an equivalent lump sum figure is calculated based on those same factors.
You also have to decide if you want to take the monthly income or lump sum cashout now (or if you are younger than 50, when you turn 50) or when you actually retire.
Like with most major decisions, there are pros and cons to both the monthly income and lump sum cashout options and taking the money now or waiting until retirement. Many people at the lab think this is a simple question with a simple answer.
However, in reality, there are a number of important questions to ask yourself to make sure you make the best decision, such as:
This is usually the primary reason lab employees choose the monthly income. But what many of them don’t know is that even if you take the lump sum, there are ways to replicate the monthly income stream from the plan.
Many people are concerned about inflation and the fact that there expenses will increase as they grow older.
You should consider your spouse’s needs if you predecease him/her before choosing which your option.
If so, you should protect against your children possibly being left out in the cold if both you and your spouse were to both pass away.
One of the greatest appeals of the monthly income option is that the lab will pay a portion of your and your spouse’s health insurance premiums in retirement if you’ve been there long enough. But if you’re almost 65, Medicare will cover you even if you don’t take the monthly income.
This is important to some people, especially in terms of limiting taxes and maximizing investment performance.
Some people care more about control, others care more about guarantees.
Which option you choose and when you take the money will affect your investment strategy for your other assets.
Even if you’re still working, you may want the money today to use toward paying off debt or other purposes.
Is this a decision you should make now? Or are there too many things up in the air that leads you to want to wait before making a decision?
Hopefully all these questions (and there are others) hasn’t made your head spin, because figuring out the answers to most of the aforementioned questions involves a significant amount of introspection and discussion with your spouse. This decision profoundly impacts your retirement outlook, so it’s important to sort through all of the details before making your decision.
Determining the actual numbers is a complex process but should make reaching an emotional decision on what you’re most comfortable with much easier. A financial planner can provide this analysis for you and help you answer questions like, How much income do I need when I retire?, Will I outlive my money?, and When can I retire?
In general, you’re usually best off when you have a solid plan in place early on, and then implementing that plan according to what makes sense timing-wise. You get taxed according to your income tax rate on any money you take, so it’s important to consider what tax charges you will incur. You should also consider your future tax burden, as many experts expect income and capital gains tax rates to rise in the future.
Because I work with many lab employees and retirees, I’m very knowledgeable about the UCRP, UC’s retirement accounts, the lab’s benefit offerings, plus other issues specific to lab employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of my lab clients and you can ask them how working with an advisor has helped them.
I’d be happy to sit down with you to help you answer these questions to determine which option is the best for you, answer any other financial questions you have, and discuss a strategy for your retirement and investments.
