Have IPERS? These are Your 6 Income Options
By Kaleb Robuck
IPERS Payout Options
There are six income options when thinking about how to take IPERS in retirement. This includes 6 basic options, plus the ability to liquidate or rollover your balance into another qualified account. We will give you a brief summary of what each option consists of and would do for you. One option is not necessarily better than the other, it only matters which one fits your needs and situation the best!
OPTION 1: LUMP SUM DEATH BENEFIT
Option #1 buys a Lump Sum death benefit to be provided to your heirs upon your passing, regardless of how long you live, very similar to traditional life insurance. This benefit is purchased in $1000 increments. Unlike traditional life insurance though, the lump sum payout to your heirs will be taxable as income to them.
OPTION NO 2: REFUND
With this option, the benefit is slightly reduced to provide a small guarantee. The member would be paid as long as they live, but if they were to die prematurely, their beneficiary would continue to receive the benefit until the total amount paid out equals the amount that the employee member had paid into the plan while they were working, plus interest. This would take 2-3 years in our example, depending upon your age, etc.
OPTION 3: MAXIMUM RETIREMENT
Option number 3 is the option that will pay the largest single monthly benefit to the IPERS retiree for their lifetime. This is the straight annuity option. What this means is that if the IPERS retiree, the “Member” is living, it will pay them a monthly benefit. But with this option, when the member dies, the payments die also, and there is no residual left for anyone else.
This is the only option with no residual benefit of any kind to a beneficiary. Because, if you are not providing for anyone else, it will pay out the largest monthly benefit. All the other options are a reduction from this option.
OPTION 4: JOINT AND SURVIVOR BENEFIT
Option 4 is what I would refer to as the joint and survivor benefit option. With this option you can provide a benefit for your spouse that will continue monthly for them if something happens to you. You can decide if you want them to receive the same benefit you are to receive, or a reduced benefit based on the percentages below.
- Joint – Full Benefit
- Joint – 75% Benefit
- Joint – 50% Benefit
- Joint – 25% Benefit
The catch is if your spouse passes away before you do, you are still locked at this reduced amount from that point forward.
OPTION 5: 10 YEAR GUARANTEE
Option 5 provides a 10-year decreasing Benefit. This Option provides a lifetime annuity payment to the member, just as all the other options do, but also incorporates a 10-year Period certain Feature. This means that the member will be paid for their lifetime. But if they were to die before 10 years of payments had been made, their beneficiaries will receive the balance of payments for a total payout period of 10 years.
This is the only option that guarantees that the member and/or their beneficiaries, will receive all the contributions made to the plan by the member employee and their employer.
OPTION 6: POP-UP
So based upon the possibility of that situation happening in Option 4, Option 6 was created. This option allows you to still choose a Joint & Survivor benefit. However, if your spouse does predecease you, you are able to “Pop-Up” your benefit to a level that would be similar to the benefit you would receive from Option 2. This Option was added in 2001.
However, there is always a catch. The concern with this option is that now you have set a new low for income you receive. If you both live a long and healthy life, you have reduced the benefit you receive to lowest Option available for the entire period.
Don’t let IPERS be your only source of income in retirement. IPERS should only be one slice of your retirement planning pie. Coordinate your benefits with those of your personal and employers' other retirement plans, and those of your spouse. IPERS was not and is not designed to replace 100% of your income at retirement, nor is social security. It’s important to have a gameplan for your IPERS, but it is even more important on how to coordinate that with your other retirement savings, Medicare, and Social Security.
This is not a simple task. Consult with a trusted financial advisor about how to pick the best IPERS option for you and your family and how to ensure you can live comfortably in retirement. The way to make sure you will have a successful retirement is to try and coordinate all the pieces of your personal and financial lives.
Daniel S. Miller, Kaleb Robuck, and Marcus Taylor are investment adviser representatives of, and securities and advisory services are offered through, USA Financial Securities Corp. (Member FINRA/SIPC). USA Financial Securities is a registered investment adviser located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Securities.
Miller Financial Group does not work for, or are associated with, IPERS in anyway.