How to Get a Pension Buyout
- 1). Conduct your own risk-versus-reward analysis before contacting a lender. To illustrate, if the purpose of the cash advance is to pay off high interest credit card debt, will the cash flow that is freed up from debt service be enough to offset the loss of retirement income sold to the finance company? Will the intended use of the lump-sum payment enrich your retirement, or could it become a cash drain on your retirement resources down the road? Are you sure you will not need the pension income for the one- to eight-year buyback period of the cash advance contract? Once the cash payment has been made, it usually cannot be changed.
- 2). Obtain a cash advance estimate online from at least three consumer lenders. Make sure to input exactly the same loan information to each lender, especially the "net" monthly pension and the selected "buyback" period. The net amount is what you actually receive each month after deductions for taxes and allotments. The buyback period is the number of monthly income payments you are selling. The lump-sum estimates will be subject to credit evaluation, pension verification and the partial assignment of a life insurance policy for the amount of the advance when buyback periods exceed one year.
- 3). Contact the lender offering the most attractive advance. Since the estimate is not a firm quote, do not sign any contract until you receive a written statement of the actual lump-sum advance, which should reveal all charges and the interest rate used to compute the cash payment you will receive. Because the lender actually is purchasing several years of your pension, this transaction is not technically a loan. However, to make a profit on this business, the finance company is going to "discount" the value of the future income it has purchased using an interest rate that reflects the return it could expect had it simply loaned money to a worthy borrower.
- 4). Make your final decision only when in possession of all pertinent loan information and with a complete understanding of the finality of your decision. Selling a few or many years of your guaranteed pension may indeed be the right decision under your specific circumstances, but you shouldn't take that final step unless you are sure that giving up assured future retirement income for an immediate benefit is the best choice. One of the reasons baby boomers as a group find themselves ill-prepared for retirement is their decision to spend for current enjoyment instead of saving for future retirement. Pension buyout candidates should heed the boomer's experience and proceed responsibly.