Usually such withdrawals will be in the form of income payments, but there may be other options. If the plan administrator allows it, you can make non-recurring (one-time) withdrawals from a pension fund.

This is usually not allowed, however. The regular qualified plan distribution rules will apply as far as the IRS is concerned, and they may charge a 10% penalty if the withdrawals are taken before age 59½. After you retire, you’ll typically have two options: a fixed monthly payment for the rest of your life (also known as a Life Annuity), or a lump-sum payment.

It’s important to understand which choice is best for you – and this isn’t always easy. Generally speaking, if you will have a long and healthy life, the monthly payments are a better choice. Regretfully, if your life expectancy (for whatever reasons) does not extend far beyond your retirement age, a lump-sum distribution can be a better choice. The reason for that is simple – your Pension usually stops when you die.

Many pensions give you the option to take a slightly lower payout at first but to have a survivorship benefit payout to your spouse of, say, half of the full pension amount — this can be a huge benefit if your spouse is significantly younger or in better health.

The annuity options might also include a “years certain” option, which means that the annuity payments are guaranteed to pay for the number of years-certain, starting from the beginning of the income withdrawals, whether or not the plan participant is alive.

If the plan participant lives longer than the years certain, it will continue to pay, but will stop when he or she dies. Consult with a professional before making such an important decision.

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