Pensions and Annuities

This folder asks about your family's defined benefit pensions and existing annuities as well as annuities that will be purchased in the future out of regular assets. Defined benefit pensions are lump sum or annual retirement payments made by employers to their employees. The amount of benefits provided to employees through defined benefit pension plans typically depends both on the number of years worked with the employer and the age of the employee at the time he or she begins to receive benefits.

Enter each defined benefit pension separately. Note that you may enter these benefit amounts either in today’s dollars or in dollars. Whichever option you choose, the program will display on the grid the initial amount of the pension in today’s dollars. You can indicate whether the payments will be lump sum or annual, whether and the degree to which they will grow through time, and the percentage of lump-sum and annual benefits to be paid to survivors. If there is no cost of living adjustment (COLA), indicate that it is indexed to inflation at 0%. If it receives a full COLA, then enter 100% indexed to inflation. If it receives an adjustment that is half that of inflation each year, enter 50%, etc.

Finally, the program asks whether the defined benefit pension is based on employment that was subject to Social Security taxation. If not (which is the case for teachers and other state workers in certain states as well as some members of the military), the program will take that fact into account in calculating Social Security benefits.

The annuity tab lets you specify whether the annuity will grow, whether it has a guarantee period, whether its payments continue after the guarantee period, whether it has a survivor benefit, the size of the survivor benefit, and the degree to which the annuity payment is taxable.

If you are entering an annuity that will be purchased with regular assets in the future, you should treat the purchase price of the annuity as a special expenditure (enter a Special Expenditure) to be incurred in the year the annuity is to be purchased.