Jeff Pabst, CRC
When presenting at a Pre-Retirement Seminar, many of the attendees ask me questions about what their spouse will receive from LAGERS once they pass away. There are a couple of options that married members may choose at the time of retirement that will pay to their spouse upon their death. Read this blog for more information about spousal options. On the other hand, I do get some questions from single members wondering if they have any options. Don’t worry; even if you’re single, you have some options with your retirement benefit.
The options a single individual has to choose from at retirement are the Life Allowance and Option C. Also, the Partial Lump Sum can be added to each of those options. So, which one do you choose? When determining which payment option to choose at retirement, you may want to consider a few items:
- What are your fixed expenses in retirement?
- Do you plan to travel or pursue a hobby that will have an impact on your expenses?
- Will you have additional sources of income?
- Are you planning to leave a legacy in the form of inheritance?
All things to consider when choosing your payment option.
Now, let’s explain your options as a single person.
Life Allowance. The Life Allowance is the largest monthly benefit you can receive in retirement. But, when you pass away, there is no monthly benefit payable to a beneficiary. The only instance where there is something payable under the Life Allowance is when you have a balance remaining. This balance can be from the 4% contributions made at any point in your career from which you did not receive a refund or funds used to purchase service (if applicable).
For example, if you have $20,000 in employee contributions, the first $20,000 you receive in your retirement benefit is your employee contributions. Since LAGERS pays out your employee contributions through your retirement benefit, if you pass away before the total of $20,000 has been paid out, your beneficiary will receive a lump sum of the remaining contributions.
Option C. This option is called the 10 Year Payment Certain plan on your benefit estimate. This can be somewhat misleading because it makes it sound like you will only receive payments for 10 years. There is no option that you could choose under LAGERS that does not pay you for the rest of your life. Option C guarantees at least 120 payments are made to you or your beneficiary in retirement. Specifically, if you pass away within 120 months after retirement, your beneficiary will receive the remaining payments until a total of 120 payments have been made.
For example, if you elect Option C when you retire and pass away 96 months in to retirement, your beneficiary will receive the remaining 24 monthly payments. But, if you live more than 120 months after retirement and pass away, your beneficiary will receive nothing under Option C.
Partial Lump Sum Feature. This feature can be added to the two previous options listed above. It pays you a lump sum 90 days after retirement that is equal to 24 months of your Life Allowance benefit. This option can be a great way to get a large amount of money early in retirement that you could use for many different purposes like paying off your mortgage, leaving a legacy for your children and grandchildren, or many other purposes. Also, you can roll your Partial Lump Sum into a qualified retirement account to delay the up-front taxation, potentially grow the funds throughout retirement, and set the beneficiaries of that account to whomever you choose. Read more about the Partial Lump Sum in this blog post.
So, as you can see, even if you are single, you have some options as to what to do with your LAGERS benefit at retirement. To get an in-depth explanation of your options, attend a LAGERS Pre-Retirement Seminar or call the LAGERS office.
Jeff Pabst, CRC Senior Communications Specialist