What Can Go Wrong

Managing a pension seems straightforward, but administrative oversights and poor tax planning can easily derail your retirement. Avoid these common mistakes:

• Choosing a Single-Life Annuity Without Spousal Consent: A single-life annuity offers the highest monthly payout because payments permanently stop the moment you die. If you are married and choose this option without realizing the consequences, you could leave your surviving spouse destitute. By law, married participants usually must obtain a signed, notarized waiver from their spouse to choose a single-life option over a joint-and-survivor annuity.
• Taking a Lump Sum in Cash: If you accept a lump-sum buyout and the company writes a check directly to you, the IRS requires the plan administrator to withhold 20% for federal taxes. If you are under age 59½, you may also face a 10% early withdrawal penalty. To avoid this entirely, you must execute a “direct trustee-to-trustee rollover” straight into your Traditional IRA.
• Forgetting About Medicare IRMAA: Heavy pension income increases your Modified Adjusted Gross Income (MAGI). If your MAGI crosses certain thresholds, the government slaps you with an Income-Related Monthly Adjustment Amount (IRMAA), forcing you to pay significantly higher premiums for Medicare Part B and Part D. You can find current IRMAA brackets at Medicare.gov.
• Losing Track of Old Pensions: If you worked for a company 30 years ago and they were acquired, merged, or went bankrupt, your pension still belongs to you. Countless seniors miss out on free money simply because they forgot to claim a pension from a job they held in their twenties.