Don't Retire! (Until You Do This)
Are You Leaving Money on the Table When
You Sign Your Retirement Papers?
September 30, 2022 - You know that sinking feeling you get when you buy a car (or a cell phone, or a refrigerator, or a pair of shoes, or any consumer product) only to learn you could have purchased the exact same item for less money if you had just taken the time to engage in a little comparison shopping before buying?

Now, imagine that same sick feeling, only on a much grander scale, staying with you for the rest of your life because you failed to price check your pension benefits before finalizing your retirement paperwork.

"What? You mean I have choices?"


All Pensions Are NOT Created Equal

Defined benefit (DB) plans, aka traditional pensions, were once the rage in corporate America but have progressively been replaced over the years in favor of defined contribution (DC) plans, mainly 401(k)s and 403(b)s, which shift the responsibility for providing retirement security from the employer to the employee.

Although not as common as they once were in their heyday, most all government employees as well as a dwindling number of private sector workers can still expect retirement income from their traditional DB pensions when they retire.

Perhaps you are one of them.

But because these DB plans can be expensive for employers to maintain and (most) employers aren't in the business of managing longevity risk, some companies run the risk of running out of money before satisfying their contractual obligations to their retired workforce. Or they can more cost-effectively meet their obligation by outsourcing.

How else do you account for the recent spate of pension risk transfers, where private employers transfer their DB liabilities to a (usually) life insurer better equipped to manage longevity risk?

In 2021, a record $38.1 billion of U.S. pension risk transfers occurred, and 2022 is already on pace to shatter that record.

In addition to being beneficial to have your pension managed by a life insurance company with an infinitely greater capacity to manage longevity risk due to its pooling of mortality credits (inside baseball talk for insuring enough bodies so that those who live longer than their statistical life expectancy can still be paid because there will have been a statistically significant number of individuals who died prematurely), . . .

. . . a private life insurance company option
may pay you more money!

Beyond pension risk transfers involving entire books of liabilities, many smaller-scale pension risk transfers occur when employers give individuals the option to "cash out" all or a portion of the value of their future pension benefits.

Perhaps your company is one of them.

For this reason, soon-to-be-retirees should ALWAYS engage in a little comparison shopping before they sign on the dotted line to accept the pension benefits contractually promised by the soon-to-be-former employer.

But, Dan, how do I know you're not just saying this because you're an insurance guy?

Because I have personal, irrefutable proof you might be better off outsourcing your future.

It Doesn't Get More Personal Than This

Many moons ago, fresh out of college, I began my adult life as a schoolteacher. An education major, I originally thought I wanted to be a basketball coach and began teaching at a local public school near my hometown of Canton, Ohio.

Turns out, while I liked playing basketball a lot, coaching really wasn't for me. I managed to stick with the teaching profession for a handful of years before fate and circumstance ultimately led me to a new career in the insurance industry.

But because I lasted 5.1 years, I qualified (just barely) for a small pension through the State Teachers Retirement System of Ohio (STRS Ohio). OK, a very small pension, but a pension notwithstanding.

I never paid much attention to the annual statements STRS Ohio sent me over the years, but I am now in a position where I need to make some decisions on how best to receive the pension I'm owed.

Fortunately, as a Retirement Income Certified Professional® from the American College of Financial Services, I am the perfect guy to ask:

Should I take the pension STRS Ohio owes me as offered?


Should I take the account value of my future benefits and buy my own?

To get started, first let's look at my latest statement from STRS Ohio. (Purposely enlarged here so you can see it)
If I tell STRS Ohio I'm ready to start my pension benefits today, they'll "flip the switch" and I will begin receiving a whopping $1,303 annually for as long as I live. (I told you it was a very small pension!)

No guarantee period if I die. No benefit to my spouse. Just a straight, run-of-the-mill "Single Life Only" annuity.

The account value of this pension benefit is currently $46,932.75 and grows 3.0% per year if I do nothing.

Let's "Kick the Tires"

So, now that I know exactly what my guaranteed lifetime income will be if I simply accept what STRS Ohio owes me, I need to do a market survey to see if I can parlay my pension's $46,932.75 account value into higher annual payout.

Fortunately, because I do this for a living, performing an apples-to-apples comparison is easy.

I simply plug the data into the CANNEX search engine I have access to which scours the market for annuity pricing to see what's out there.

Any guesses what my analysis revealed?

(Hint: if it wasn't positive, I probably wouldn't dedicate a newsletter to this subject.)
Survey Says . . .

For the same $46,932.75 available to me, I could roll this sum into a commercially available annuity (in this case, from Penn Mutual Life) which will pay me $3,434.24 annually for life for the same Single Life Annuity.

That's $2,131.24 MORE MONEY per year (a 264% improvement) for the exact same thing! More than two-and-a-half times what STRS Ohio would pay me.

And lest there be any worries about the solvency of Penn Mutual Life, independent rating agency AM Best rates the company, which has been in existence since 1875, A+ (Superior).

I have zero hesitation moving my account value over to this insurance company.

Before I do, however, I'll want to explore other payout alternatives (Period Certain, Certain-and-Life, Joint-and-Survivor, etc.) before finalizing my decision.

But at least now I know. I can do better with my own personal pension risk transfer.

In Summary

Everyone's circumstances will be different and the available options for any given DB plan will vary by plan sponsor.

But if you have a chance to potentially double (or more) your retirement income, shouldn't you at least explore this option first? At a minimum, you'll be able to verify that the pension your company offers in as good or better than what's available in the marketplace.

Bottom line: Know your options before you finalize your retirement paperwork.

Secure a copy of your most current statement and have your options professionally evaluated by someone experienced in analyzing and pricing future income.

(Hint. Hint.)

The only time you should leave money on the table is if you're leaving a tip.

But no matter much you may have liked working, I have a hunch you aren't really eager to tip your employer on the way to your retirement party.

Maximize your pension. Compare.
Thank you for the opportunity to be of service and best wishes to you for continued success in your personal and professional lives.
Dan Finn, CPCU, MSSC®, RICP®
Master's Certified Structured Settlement Consultant®
Retirement Income Certified Professional®

"Building lifetime client relationships!"
CA Insurance License: 0A96173