Here’s a story you will probably see even more of over the next several years – Ford is starting to offer retiree’s that have pensions a buyout option on those pensions. (Source: Market Watch)

What exactly does that mean?

It works like this. Suppose you are retired from Ford and you are receiving a monthly pension. Ford comes to you and says that if you want, they will replace your pension with a lump sum of money. You can either decide to keep receiving your pension or you can take the lump sum.

Why is Ford doing this?

It’s quite simple. People are living longer, and longevity represents a substantial risk to pension funds. Ford is trying to transfer some of that risk from them towards the retiree. It’s a real problem for companies that have pension plans, and Ford is the first company I’m aware about to begin taking action to address these sorts of risks.

You may bet that other companies are watching how this process unfolds very closely. Like Ford, they would LOVE to get out of the pension plan business, and if this approach by Ford works to any degree, you can bet they’ll do the same.

The key point for you personally is that if you are retired, and you receive a pension buyout option, you will want to think very carefully before you take that option. It may make all the sense in the world, or it may be the worst mistake you can make. This is definitely one of those areas that you want to sit down with your financial advisor before you take action. Your retirement security could possibly be at risk.

Matt Golab

Matt is an Investment Advisor Representative and the Chief Advisor of Aaron Matthews Financial Resources headquartered in Elk Grove, CA.Click on here for more information on Matt Golab!

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