This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

In Your 50s? Find Your Way to Best Benefits

BOSTON (TheStreet) -- For those of us who are directionally challenged, recent technology in the form of mobile apps, GPS devices and Google Maps have made life easier by providing clear directions to where we need to go. They even alert you when there's heavy traffic or changes in street patterns that may affect your route and redirect you accordingly so you can reach your destination.

If only we had a similar device to help us navigate the labyrinth of factors we must consider when deciding how and when to take our pension benefits at retirement. While fewer and fewer companies offer traditional defined-benefit plans, people fortunate enough to have a pension must weigh several factors -- such as life expectancy, income needs and current interest rates -- to determine whether it's more beneficial to choose a one-time lump sum distribution or annuitize the benefits over a lifetime.

Even without a GPS, you can find your way to a good answer to pension benefits.

Complicating matters is the fact legislation is changing constantly and may tip the balance to one option over the other. The climate seems to have changed recently, making monthly income payments more attractive than a lump sum distribution.

Why annuitize?
Passed Aug. 17, 2006, the Pension Protection Act was the most sweeping pension legislation in more than 30 years and included a number of significant reforms affecting pension owners. For example, it changed the benchmark interest rate used to calculate lump sum benefits for all pension plans. Rather than being based on 30-year Treasury yields, the act stipulated that plans use a higher composite corporate bond rate for benefit calculations. This change has been phased in, beginning in 2008, and will be fully implemented in 2012.

Generally speaking, for every 1 percentage point increase in interest rates, there is a 10% drop in the value of the lump sum payment -- and, as noted, the corporate bond rate is much higher than the 30-year Treasury yields. For participants retiring next year and beyond, the result will be a lower lump sum benefit compared with what they would have received without the law (assuming all other factors, such as retirement age remained equal), making annuitizing more attractive.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,945.86 +26.27 0.16%
S&P 500 1,983.17 +1.57 0.08%
NASDAQ 4,526.6560 -0.8580 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs