Alan Moore / L’Observateur / November 29, 2000

According to the US Department of Labor, more people are taking their pensions in one lump sum payment than in lifelong monthly checks. Thismeans independence for those employees who want to make a clean break from their employer and design an investment portfolio that meets their individual needs.

Unfortunately, statistics also show that many such employees are ill- equipped to handle the tens of thousands of dollars they may receive in a lump sum payment. As a result, fewer than a third of these employees olderthan 40 put their entire lump sum into a retirement account, and only 16 percent under the age of 40 do. Instead, they are paying bills, startingbusinesses, buying cars, etc., and incurring tax penalties that wipe out 10percent of the payment for those under 591/2.

Spending even a portion of the money you receive from a lump sum payment can dramatically cut into your retirement income, and the less money you start with, the slower it will grow. Additionally, income taxes must be paid onthe amount you do not roll over and a 10 percent tax penalty may apply to any money not rolled over if you are under age 591/2 (or age 55 if you have separated from service).

What’s more, you simply can’t rely on benefits such as Social Security or other pension plans to supplement your income in retirement any more. Infact, according to the Employee Benefit Research Institute (EBRI) in 1996: The percentage of an elderly individual’s income derived from Social Security declined to 42.9 percent, and the average amount received inincome from Social Security was only $7,504.

Income from pensions and annuities accounted for 19.7 percent of anelderly individual’s income, and the average amount received in income from pensions and annuities was only $3,485.

The average private pension plan income received by an elderly individual was only $1,775, and the average public employer pension plan income received was only $1,557.

The average amount an elderly individual received in income from assets was only $3,130, and the average amount received in income from earnings was only $3,077.

As you can see, it would be wise to keep your money invested in a tax- deferred vehicle such as an IRA or other employer-sponsored qualified plan instead of not rolling it over. In doing so, you can effect a dramaticdifference in tomorrow’s standard of living, while protecting your money from today’s inflation.

ALAN S. MOORE is a financial advisor and sales manager in the New Orleansoffice of Legg Mason Wood Walker, Inc., a diversified securities brokerageand financial services firm that is a member of the New York Stock Exchange, Inc.

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