How To Sell Your Pension Benefits
Retired military members are attractive to pension-buying companies because of their secure pensions.
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Retirees with pensions can sell their pension benefits for a lump sum to third-party companies that act as middlemen between pensioners and investors. The companies advertise themselves as "pension buyout" or "pension sale" companies. Pension-buying companies bundle the pensions they buy into portfolios they can sell to investors. Investors provide the capital to pay the pensioners. Retirees who need immediate cash might be interested in such a deal, and investors hope the deal will be a lucrative investment.
Verify Legality
It might be illegal for you to sell your pension. Many federal pensions, for example, can't be sold. Pension-buying companies try to get around legalities by having you set up a special bank account that the pension-buying company controls. Such deals have an ill-defined regulatory status, which might make them unsafe for you, according to the Daily Finance website. Hire an attorney to review the legality of the deal you're considering before you sign any papers.
Determine the Frugality
An accountant can help you determine whether the amount you're being offered for your pension benefit is fair. She can also explain any tax ramifications. The money you receive could put you in a higher tax bracket, which would cut into the amount you realize from the sale. Pensioners typically fare the worst in these deals. Investors can enjoy a return on this type of investment of up to 7 percent, and the pension-buying companies get an even bigger share, says consumer reporter Clark Howard. The typical pensioner usually gets the crumbs.
How to Sell
Although you can find third-party companies to handle the pension sale for you, most financial advisers urge pensioners to avoid this path. All you have to do is respond to a solicitation or advertisement from firms that offer lump-sum cash payments to people willing to sell their pension benefits. You can also find these companies by conducting an online search. Contact the company to determine whether you qualify, how much money you can get and how much it will cost you to make the deal. The Financial Industry Regulatory Authority urges pensioners to check out all companies with the Better Business Bureau and message rating boards before doing business with them so you don't fall prey to a scam.
Why to Think Twice
When you sell your pension benefits, you typically get much less money than you would by drawing your pension over time. It could be a costly mistake if you look only at the lump sum the company offers and not consider how much it will cost you in associated fees. Many pension-buying companies, for example, require that you buy life insurance out of pocket and list the company as a beneficiary, which will cost you even more money. If you're pressed for money, you might fare better to get a traditional loan from a bank or credit union once you compare the interest rate the financial institution charges with the costs the pension buyer charges.
References
Writer Bio
Laura Agadoni has been writing professionally since 1983. Her feature stories on area businesses, human interest and health and fitness appear in her local newspaper. She has also written and edited for a grassroots outreach effort and has been published in "Clean Eating" magazine and in "Dimensions" magazine, a CUNA Mutual publication. Agadoni has a Bachelor of Arts in communications from California State University-Fullerton.