Throughout your life as a nurse you’ve gotten used to working hard, clocking in, caring for others with the healthcare expertise and skills you’ve worked hard to earn, and clocking out, looking forward to relaxing and decompressing. If you have a pension, you may have even been told that you have a guaranteed source of income for retirement that you don’t have to worry about.

However, if you’re nearing retirement with a pension, it’s not as simple as setting it and forgetting it. But we’re not here to tell you to do more work after your shifts. We’re here to help you reach the retirement you dream of and simplify the retirement planning process. So first, let’s start with what you need to know about pensions.

How Your Pension Works

A pension is a retirement plan that provides a regular stream of income to retirees. It is typically offered by employers as a form of employee benefits. Pensions are based on a formula that considers an employee’s years of service and earnings history. The employer is responsible for managing the investments and ensuring that there is enough money in the pension fund to pay out benefits.

Once you retire and claim your pension benefits, the pension can provide you with a reliable source of income. This can help to supplement Social Security benefits and personal savings. However, pensions are not without risks, and there have been cases where pension funds have become underfunded, leading to reduced benefits or even the failure of the pension plan.

The Pension Buyout Question

A pension buyout is an offer made by your employer to a pension plan participant such a nurse like you. Basically, the employer offers to exchange their pension benefit for a lump sum of money… but it’s not that simple. Here’s how pension buyouts work:

  • Offer: The employer typically offers the pension buyout to a participant by sending a letter or a packet that includes details about the offer, the participant’s pension benefit, and the amount of the lump sum payment being offered.
  • Decision: The participant then has the choice to either accept or reject the buyout offer. If they accept, they will receive a lump sum payment in exchange for giving up their future pension benefit. If they reject the offer, they will continue to receive their regular pension payments as usual.
  • Payment: If the participant accepts the buyout offer, they will receive a lump sum payment from the employer. The amount of the payment is based on the value of the participant’s pension benefit, which is calculated using factors such as the participant’s age, life expectancy, and interest rates. If interest rates are relatively low, buyout offers tend to be higher, and when interest rates are relatively high, buyout offers are relatively low. Ask your advisor about Minimum Present Value calculations for more on this.
  • Risks: It’s important to note that accepting a pension buyout comes with some risks. By accepting the buyout offer, the participant is giving up their future pension benefit, which means they will be responsible for managing their own retirement income. Additionally, the lump sum payment may be subject to taxes, and may not provide the same level of income security as a guaranteed pension payment.
  • Considerations: Before accepting a pension buyout offer, it’s important to carefully consider the risks and benefits. Working with a financial advisor can help participants evaluate their options and make an informed decision that aligns with their retirement goals and needs.

 

It’s also worth noting that not all pension plans offer buyout options, and the terms and conditions of pension buyouts can vary depending on the employer and the specific pension plan.

Pensions were once a common retirement benefit, but in recent years, many employers have shifted to defined contribution plans, such as 401(k)s, which shift the investment risk from your employer to you. However, some employers—particularly in the healthcare space which includes many established companies, hospitals, and government institutions—still offer pension plans to their employees.

We know that nurses like you have worked tirelessly to care for our nation’s vulnerable population and loved ones. And sometimes, “thank you” isn’t enough. What you need and deserve is financial security and a key piece of that comes down to how you manage your pension plan decisions.

To find out how to maximize your pension plan and navigate the pension buyout question given your unique situation as a nurse, talk to us today for a review of your financial situation.