Baby Boomers May Want To Consider
Drawing Pensions Early
By Eileen Alt Powell
The Associated Press, June 14, 2004
Millions of Americans have changed jobs at least once in their careers, and many have left behind pensions that can help support them in retirement.
Most of these pensions are held by their former employers -- or trustees for the companies -- until the retiree collects them.
Some workers aren't even aware they're eligible for this money until they're informed about the pensions when they register for Social Security benefits, said William J. Arnone, a partner in the human capital practice at Ernst & Young LLP in New York.
Arnone recommends older baby boomers start taking steps now to locate these pensions and, perhaps, consider drawing them before they turn 65.
The pensions he's talking about come from defined benefit plans. Unlike 401(k) plans, which are funded by contributions from workers, the traditional defined benefit plans are funded by companies. Each plan has its own set of rules on how long workers must stay at a company before they qualify for benefits and the ages at which the money can be paid out.
At many companies, you can get it as early as 55, Arnone said.
Someone who draws a pension that early will probably get considerably less than if he or she waits until age 65, he said.
"But there may be people who are out of work or disabled or desperate for money to cover big bills," Arnone said. "This is something that could really help."
In most cases, the benefits are paid out as annuities, a fixed monthly payment for a set number of years.
But even people who aren't desperate for the money should take a look at their pension plans and think about whether it might pay to begin drawing benefits early -- say at 58 or 62 -- and to invest the money at a potentially higher return than the plan guarantees.
Because the pension payouts are taxable as income, the calculations can be tricky, and Arnone suggests baby boomers seek help from financial planners or advisers in making such decisions.
Martin Heming, an attorney specializing in employee benefits at Reish, Luftman, Reicher & Cohen in Los Angeles, said that "it certainly wouldn't do you any harm" to look at collecting pension benefits early.
He noted that most plans call for an "actuarial reduction" in the amount of money you'll receive each year if you retire early. For example, a plan might pay $1,000 a month if you start drawing the money at 65, but $700 if you take payments starting at 58.
"You have the right to get a quote from the employer as to what your pension would be at each age and determine the factors by which they calculate the reduction," said Heming, a member of the board of the Chicago-based National Institute of Pension Administrators.
Some workers may face difficulty in finding the company that promised them the pension. In some cases the company may have been taken over by another, and the worker's pension plan rolled in the merged company's program. Or the company may have shut down, with the pension money turned over to an insurance company for safekeeping. Or it may have gone bankrupt, with the government taking over the pension funds.
Bruce said boomers should check their personal files for copies of their pension plan provisions and any statements that indicate what they're entitled to at retirement.
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