FRS Investment Plan / Lump Sum Option
In addition to the 4 monthly pension options available at retirement, the Florida Retirement System offers an additional lump sum option called The Investment Plan.
The Investment Plan gives you a lump sum payout from the FRS instead of receiving a monthly pension amount. Like almost any choice we make, there are advantages and disadvantages to the Investment Plan.
In this week’s post we’re going to discuss some the advantages of the Investment Plan.
Income as Needed
As we always discuss, each person is unique in their circumstances and needs. The Investment Plan gives the participant and their beneficiaries control over when and how they take distributions. Here are some circumstances which make income control important:
- If you have little to no bills or another source of income and don’t need a high pension amount. For some clients, higher distributions just mean a higher tax bracket.
- If you have high bills now which you will not have in the future. Some clients have an expensive mortgage payment that they will not have in 10 or 15 years. They can elect the investment plan to help pay that bill, and then drop down the amount of distributions at a later date.
- Higher income during Quality Time of Life. Some clients want additional income while they’re young enough to enjoy it.
Have Access to Additional Funds
Some participants simply like the option of being able to access additional funds from their retirement account. With the FRS Investment Plan, you have full authority over when and how much you take. Here are some situations that may make sense for additional lump sum distributions:
- Paying off bills.
- Traveling and Leisure
- One time Purchases
- Helping out family members
*Note: Distributions from the investment plan or rollover investments are taxable. Please consult a tax professional before taking any lump sum distributions.
Leaving Money to Beneficiaries
As discussed in previous posts, the FRS Pension options limit who you can leave money to:
- Option 1 – Participant Life Only
- Option 2: Participant Life + Any beneficiary for 120 months after retirement
- Options 3 & 4 – Participant Life and Spousal Lifetime Benefits
With the investment plan you can leave any remaining funds to whomever you’d like. There are no restrictions on who is allowed to inherit money and how they inherit it. Some of the people that this is a concern to are:
- Participants in poor health. If you chose a pension option, then you’re being covered for your lifetime. Pension programs are designed to provide long-term lifetime income. If your life expectancy is shorter than average, then the Investment Plan may be the way to go.
- Participants with someone other than their spouse who are dependent on their income.
- Participants who want a contingent beneficiary. If a participant choses options 3 or 4 and something happens to their spouse before or at the same time as them, then there is no contingent beneficiary.
- If you want to leave your beneficiaries a lump sum instead of a monthly pension.
Like almost all retirement/investment decisions there are always pros and cons to the choices you make. If you’re considering this option, please contact our office. Our advisors will contact the FRS and find out exactly how much each option will be and give you a full picture of the benefits of choosing each pension option.
Please consult a financial professional before making any major decisions regarding your pension or any other investments.