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| The Basics | Pension plan is free to change the rules
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Your pension plan can indeed withdraw your option of a lump-sum payment. But don't overlook the advantages of annuities that it offers.
By Liz Pulliam Weston
Question: Our pension plan has always given us three retirement options: a lifetime annuity that provides payments as long as you live, a joint-and-survivor annuity that provides somewhat smaller payments that continue after your death as long as your spouse lives, and a lump-sum payment. The lump-sum option allows you to control your own fate in retirement, and should you die shortly after retirement you have a sizable cash estate for your heirs or spouse. Recently, however, the plan took away the lump-sum option. Is that legal? Dont we have some kind of grandfathered rights?
Answer: Pension plans have considerable leeway to change the rules. While you typically cant lose benefits youve already earned, your ability to earn future benefits -- or receive payouts in the way you planned -- isnt carved in stone.
If youre close to retirement and youre set on the lump-sum option, you (and your like-minded co-workers) might petition the plan to see if its trustees would be willing to modify the change so that you can take advantage of the option before its phased out.
If you fail, however, its not the end of the world. Millions of investors have learned lately how treacherous it can be to have responsibility for their own retirement funds. Indeed, many would love the option of having a guaranteed paycheck for the rest of their lives, which is what a lifetime annuity payout is. Its true that the checks stop when you die (or, in the case of a joint-and-survivor annuity, when you both are dead), so this kind of pension doesnt benefit your children or other heirs.
But it does ensure that you wont outlive your money. For most people, that should be far more important than making sure your kids get an inheritance.
Debt consolidation can hurt your credit
Q: I am not in trouble with any of my creditors, but I have way too much debt. Im thinking about a debt consolidation loan but am worried it would harm my creditworthiness. Does it help or hurt to have one consolidated payment rather than paying on multiple accounts?
A: The actions usually associated with debt consolidation loans -- opening a new credit account and closing old accounts (after using the debt consolidation loan proceeds to pay them off) -- frequently will hurt a FICO credit score, said Craig Watts, spokesman for Fair, Isaac & Co., which created the FICO credit-scoring system. How much it will hurt depends on your situation and the other information in your credit file.
Its possible, although not likely in your case, that the damage is worth suffering. If a debt consolidation loan could help you get out of the hole faster, for example, then you might be willing to make the trade-off of accepting a lower score for awhile in order to accomplish that goal.
Most debt consolidation loans do exactly the opposite, however. Not only do they stretch your payments out longer, meaning you pay more in total interest, but they often include high fees or other undesirable add-ons like overpriced insurance.
Youre usually much better off pursuing your own debt repayment plan. Pay as much as you can on your highest-rate, non-deductible debt -- typically your highest-rate credit card. Make the minimum required payments on all your other debts until this highest-rate debt is paid off.
Then take the same amount of money and apply it to the next highest-rate debt. Continue working your way through your credit cards in this way until youre entirely debt-free.
Youll need to stop using your cards, of course. You cant get out of debt if you continually add to the pile.
If your main motivation for seeking debt consolidation is convenience, you can also accomplish that without applying for another loan.
Most credit-card issuers will take a monthly payment directly and automatically from your checking account, if you authorize them to do so. You typically can specify the amount, direct them to take only the minimum payment or ask them to deduct the entire balance on the card. In your case, you could set up all your credit cards so that the minimum balances are paid. Then you can make one additional payment each month to the highest-rate card, either paying by check, online bill payment or at the credit cards Web site.
Remember, though, that you probably dont want to close these old accounts as you pay them off, unless you absolutely cant resist the temptation to run up balances again. Closing accounts can hurt your credit score, so accounts once opened are usually best left alone.
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MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.
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