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), Call 800-872-6684 to speak with an annuity specialist. Each plan is different, so be sure to know the rules. You have the monthly payments, but that's it. Live to 90 and the likelihood hits 57%. With over 10,000 baby boomers reaching retirement age every single day, many are faced with the decision to take a lump sum dollar amount or an annuity payment from their employer. … Winning Lottery or a Pension - One Lump or Many? Post-Retirement 401(k) Options . That will help remind you to keep your sticky little fingers off the money that's supposed to last your entire lifetime. The April 2015 pension changes introduced a new, flexible way to take money out of your retirement savings. Based on your financial situation, it may be necessary to make sure you have other sums available to help you cover unexpected expenses. Under a defined-benefit pension plan, retirees can opt to receive payments from the plan in the form of an annuity (monthly payments) or a lump sum (a one-time payment of the whole amount you are owed). According to the Employee Benefit Research Many people have earned a pension at some point during their working careers. Thanks. anything not to affect my pension income. Insurance companies often issue contracts which are 'state-specific.' Get quick answers to your annuity questions: Call 800-872-6684 (9-5 EST). ** Many employers offer retirement benefits to both part-time and full-time employees. Some people choose to take a lump sum and roll it into an IRA, managing the investments on their own terms. **Tip! (That assumes you draw down the lump sum to zero over your life span.) The best way to take a pension A life of monthly checks usually beats a big lump sum. Before the pension freedoms, it was compulsory to take an annuity or go into income drawdown after taking a tax-free lump sum, and drawdown … Note: If your pension includes part-time service, the benefits are adjusted to reflect the part-time assigned hours of work compared to the full-time hours of the position. i have more than 350,000$ on RRSP. Special to The Globe and Mail . You leave the money in your current pension fund and take out lump sums when you need to. How best to draw income from your retirement savings. But keep in mind that those are long-term averages - your annual returns will fluctuate. If your investments take a big hit early in retirement and you keep taking out $2,000 a month, your $300,000 will run out long before you do. KIP TIP: In general, women who want lifetime income should take the pension’s monthly payout. Your privacy is guaranteed. @themotleyfool #stocks, Biden Signs Executive Orders for Enhanced Food Benefits and Workers' Rights. Whether it's best to take a lump sum or keep your pension depends on your personal circumstances. Open this photo in gallery: Getty Images/iStockphoto. The way your 401(k) plan works after you retire depends on what you do with it. That could leave your family in dire financial straits if they don't have other sources of income. 2% × Average salary in excess of the AMPE Footnote 2 × Years of pensionable service (maximum 35 years). A joint and survivor annuity gives you a way to protect your family after you're gone. Mary. Taking a lump-sum payout means you'll get a single, large sum of money as soon as you retire -- and that's … These work in the same way but are DIY pensions, allowing you to choose your investment. So if you choose the lump-sum option, roll it into an IRA or another retirement account, rather than tucking it into a standard brokerage or bank account. Examining different scenarios can help you decide on the best way to meet your retirement goals, while paying as little tax as possible. The 7 Best Retirement Plans Options to consider: 1. So, if you need a lot of money in an emergency, you're out of luck. Many people have earned a pension at some point … When choosing how to take your pension, crunch the numbers. Some pensions allow participants to take a higher payout and receive the pension for a certain period of time, such as 10, 15 or 20 years. Unfortunately, retirees who choose this option tend to overspend their lump sum, leaving them without sufficient funds later in retirement. A single life annuity is the simplest type of pension annuity. And one way to do so is by selecting the best payout option for yourself and your family. The best strategy for tapping your retirement accounts Your goal when withdrawing money from your retirement accounts is to keep your taxable income as low as possible while allowing … Review your state's laws to determine the best way to protect your pension in a divorce. If you live that long, you'll have to have earned an average annual return of 5.1% if you're a man, 6% if you're a woman, to produce $2,000 a month. 403(b) plans. However, these 25 ideas and lifestyles just might rise above the rest as the best ways to spend your retirement. If there are options to take the pension before age 65, determine if taking your pension earlier (although for a reduced amount) makes sense. Market data powered by FactSet and Web Financial Group. Find out more about how much you could receive.You can also work while receiving a CPP retirement pension. Before you join them, consider the risks. … A 65-year-old man has about a 50% chance of living to age 85; a woman has a 50% shot of getting to 88. What it means to you: A 401(k) plan is one of the best ways to save for retirement, and if you can get bonus “match” money from your employer, you can save even more quickly. Each plan is different, so be sure to know the rules. Annuities provide a fixed, guaranteed source of income for at least your lifetime and possibly beyond, which can be a lifesaver if something bad happens to the investments in your retirement savings accounts. An annuity is a product that pays you over time, though different annuities set their payments in different ways. 4 Ways to Take Your Pension Money: Which Should You Choose? To receive the latest version of the annuity brochure for your state call 800-872-6684. The rankings are determined by how well each of these activities will contribute to your mental and physical well being with major bonus points if it has the potential to improve your financial future. For funds that don't provide guaranteed income, such as 401(k)s and IRAs, a … Explore Ways to Bank Mobile Services ... With a pension there's no possibility of accessing the principal, instead you will receive your regular payments. For most retirees, an annuity of some type is a better choice than a lump-sum payout. Ways to Bank. As you put money into your pension your contributions receive pension tax relief, which means that you have to pay income tax when you come to withdraw it. Single life annuities make the most sense for someone who's single with no underage kids, or whose family has ample income from other sources. Cumulative Growth of a $10,000 Investment in Stock Advisor, 4 Ways to Take Your Pension Money: Which Should You Choose? Stock Advisor launched in February of 2002. Average CPP payouts. If you have multiple pensions, it may be best to start one at age 60 and one at 65. Because the number of payments your beneficiary will receive are limited under this payout option, you'll typically end up with a monthly payment that's smaller than the single life option but larger than the joint and survivor one. Furthermore: The case against the lump sum may be even stronger if you're offered a bigger monthly pension as an incentive for retiring early. Winning Lottery or a Pension - One Lump or Many? A Qualified Domestic Relations Order might be necessary to grant any benefit from a pension. And this is where you can begin your retirement savings in the early stages of your career. As Oxnard, Calif. actuary Steve Vernon notes, "Not good odds for such an unpleasant outcome.". The best way to structure your retirement income depends on many factors. Hi Doug, I have a question regarding First Nations being CPP exempt. Taxes should also be considered in your final analysis. Once you choose them, you can't get at the lump sum. Hersh Stern California License: 0676997. It's best to look over all the results produced by the various options and choose the one that will maximize your lifetime payment while still ensuring that your family will have enough income from your survivor benefits to get by without you. ), you would have 479,001,600 different combinations ( I did the math ). You do the math: To see what you'd have to earn to make the lump sum generate the same income as a monthly pension, use the investment distributions calculator at dinkytown.net. And think about it if you have a generous pension and fear your company might go bankrupt. While the joint and survivor payout option keeps the payments coming through both yours and your beneficiary's lives, the period-certain option continues to pay until your death plus a certain number of years afterward. "Typically, your options are you can take a lump sum distribution, or you can take payments over your lifetime," says Rich Ramassini, director of strategy and sales performance at PNC … Pensions Having a pension is the first thing most people think of they think of retirement income. But wait: If most of your retirement income will come from your pension, the monthly checks pose a different set of risks. RMDs smaller for some married couples. Pensions Having a pension is the first thing most people think of they think of retirement income. The federal Pension Benefit Guaranty Corp. guarantees benefits, but currently up to only $4,312 a month. 1.375% Footnote 1 × Average salary up to the AMPE Footnote 2 × Years of pensionable service (maximum 35 years). So, if you were to die before age 71, the first option, collecting at age 55, … Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Instead, recall that in a Roth account, whether a 401 (k) or an IRA, one pays taxes right away, then takes one’s money at retirement without paying further taxes. The default or standard age to receive the retirement pension is 65. With over 10,000 baby boomers reaching retirement age every single day, many are faced with the decision to take a lump sum dollar amount or an annuity payment from their employer. It's completely safe – we never publish your email address. It requires very little involvement because the employer contributes the money on behalf of the employee. If you choose the lump sum, the odds that you'll be able to generate the same $2,000-a-month income for the rest of your life hinge on how long you live and how good an investor you are. The 7 Best Retirement Plans Options to consider: 1. Pension drawdown, also known as income drawdown, is a way of taking cash out of your retirement savings, after you reach the age of 55 (this is rising to 57 in 2028). This is a decision that will affect them as well as you, so it's only fair to at least hear them out before you decide how you want to claim your money. This typically includes 401(k) plans. Many people may have more than one pension plan from different companies they have worked for over the years. Pension scams. Lump sum. You'll be able to mix any of these pension options at different times in your retirement. How long will it take to process your application. The vast majority of retirees choose the lump sum - 90% of them, according to the Society of Actuaries. You'll need to assess a number of factors, including those mentioned above and the following: 1. Copyright, Trademark and Patent Information. The first 25% (quarter) will be tax-free. It generally provides the largest monthly payments of all the annuity options, but as soon as you die, the payments stop coming -- even if you die immediately after signing up for the annuity. If you're lucky enough to have a pension from an employer, it makes sense to get the maximum possible benefit out of it. You’ll then have 6 months to start taking the remaining 75%, which you’ll usually pay tax on. The bottom line: In most cases, the checks are the better choice. Drawdown is one of the most … I think to take early retirement!. Annuities are not deposits of or guaranteed by any bank and are not insured by the FDIC or any other agency of the U.S. government. Defined-contribution pension: The employee contributes to the pension. Your retirement income and essential expenses. With a pension there may be an option to take a benefit as early age 55, but the benefit will generally increase each year until it maxes out at, say, age 65. Traditionally, people would buy an annuity with their DC … The first 25% will be tax-free and the rest will be taxed at your highest tax rate (by adding it to the rest of your income). It could end up saving you thousands of dollars if you're thinking of moving to a new … Others may take a lump sum and use it to buy an annuity held within … Let’s start with an example: Say at age 55 you could begin a pension paying $1,229 per month, or at age 62, $1,990 per month, or you could begin receiving $2,263 per month if you wait to age 65 to begin collecting. Taxes should be a consideration anytime large sums are withdrawn from a tax-deferred account (401Ks, IRAs). If your significantly younger spouse will inherit your IRA, … As long as you end up living a long life, the monthly checks are the better deal. You don't get to use all the money in your traditional 401(k) and IRA for retirement because you still have to pay taxes on it. Your best option may be different than the best choice for your coworker. Pension income is taxed as ordinary income, whereas a lump-sum amount can be rolled over to an IRA and avoid immediate taxation when received. Either way, you need to be vigilant in your retirement savings. Bucket Your Money. JOEL SCHLESINGER. Most pensions will pay you with some form of fixed annuity, meaning that whichever payout option you choose, the payments you receive will be exactly the same each month. The technical term for this is uncrystallised funds pension lump sums (UFPLS). Receiving income from an RRSP. A single life annuity may also be a good choice for a retiree in excellent health who expects to have a long retirement. Take a look at the 14 states that don't tax pension income (states are listed alphabetically). Bankrate.com provides a FREE pension calculator and other fund calculators to help consumers make the best retirement planning decisions. So what’s the best order to access your money that will make it last the longest and incur the lowest income tax bill throughout retirement, and give you enough to live on? With a pension there may be an option to take a benefit as early age 55, but the benefit will generally increase each year until it maxes out at, say, age 65. Report your retirement withdrawal when you file your taxes. According to an analysis by T. Rowe Price, you have nearly a 30% chance of depleting a $300,000 lump sum by age 85, assuming you invest in a diversified stock and bond portfolio and withdraw $2,000 a month. Reply. For the purpose of simplicity, the example will not factor in taxes or any cost-of-living adjustments.At age 70, your first option is still ahead of the other two. If your guaranteed retirement income (including your income from the p… If you’re contemplating retirement, it’s in your best interest to be proactive and research the different benefit payout scenarios available to you. Let's say you retire at 65 and can collect a pension of $2,000 a month, payable for life, or a lump sum of $300,000, which you can roll over into an IRA (thus deferring taxes until you take withdrawals). Using flexible pensions for tax-free pension withdrawals The flexible pension rules allow you to treat your personal pension more like an ISA, once you reach age 55. For example, you can take some cash from your pot first and buy an annuity later. Joint and survivor annuities provide the best protection for your spouse or other beneficiary, while period-certain annuities may be the best option if you don't have a spouse to support but want to make sure that your kids will have a source of income in the years following your death. Taking a lump sum from your retirement is a common way to purchase a car in retirement. Registered Retirement Income Fund (RRIF) With more than 20 years’ experience helping Canadians file their taxes confidently and get all the money they deserve, TurboTax products, including TurboTax … Unfortunately, the only way you can use an annuity for tax-free pension withdrawals is to take the tax-free lump sum. Most joint and survivor annuities allow you to choose what percentage of your lifetime payments your beneficiary will receive; options commonly range from 50% to 100%. Or you can choose to have it as a regular income. When you take your retirement distribution, the bank or other facility holding the account will issue you a 1099-R form. All annuity guarantees are subject to the financial strength of the insurance company. An annuity was the main way that people funded their retirement in the past if they had a personal or workplace (defined contribution) pension. When you reach 55, you'll have a choice of what to do with your private pension. Taking a lump-sum payout means you'll get a single, large sum of money as soon as you retire -- and that's the end of your pension. This is available when you reach state pension age, currently rising from 65 to 66. The lump-sum option gives you maximum control of your money, as you can then decide what to do with it instead of leaving it up to the pension people to manage it for you. An annuity was the main way that people funded their retirement in the past if they had a personal or workplace (defined contribution) ... you can close you pension pot and take your fund as cash. Of course, the higher the percentage you select, the smaller your base monthly payment will be. As a result, some people automatically file to take Social Security even though they have retirement income from other sources, be it a pension, annuity or real estate. Thus a better solution is to hedge your bets: choose the lump sum and buy an immediate fixed annuity with a portion of the money (this will give you a monthly check just like a pension) and invest the rest for growth. Is Moderna a Smart Pick for Long-Term Investors? We begin to process your application once we receive your completed application form. The remaining 75% (three quarters) will be added to the rest of your income and taxed in the normal way… Often, I plan a target taxable income at the top of a low tax bracket. The employer guarantees a certain amount for the pension … Take a Lump Sum From Your IRA. This annuity pays you as long as you live, and then continues to make payments to your chosen beneficiary (typically a spouse) throughout their lifetime as well. This just means that you haven't 'crystallised' your pension pot by turning it into an income. Returns as of 01/25/2021. If you were to start drawing on those income sources one at a time (e.g., first from CPP, second from your RRSP, etc. Quick question. You can either start drawing money from it whenever you like. That may not sound like a bad bet, especially since over the past three decades a conservative retirement portfolio (40% stocks, 40% bonds and 20% cash at the outset, with a gradual shift to 10-70-20) returned about 7% a year. Read a full guide to Sipps. Brochure Disclosure: The contract features described in all brochures on this website may not be current and may not apply in the state in which you reside. The best way to take a pension A life of monthly checks usually beats a big lump sum. It's free and there is no obligation. A pension annuity, when combined with your Social Security benefits, may be enough income to guarantee that you'll always have enough to get by, no matter what. Pension scams have become more common since April 2015, when new rules allowed people to take some or all of their pension … Or an individual in their 60s may have a pension from one company but is now working for another company. Investors prepared to do the legwork themselves can run a Sipp on the cheap, if they use the right provider. Crunching a Few Numbers Can Tell You What it Would Cost to Purchase Your Pension, QLAC Qualified Longevity Annuity Contracts, Multiyear Fixed Interest Deferred Annuity Rates, Optional: For a 2-person annuity (joint lives). You can take up to 25% of the money built up in your pension as a tax-free lump sum. … Also consider the lump sum if you're in poor health. About half of all companies don't factor that extra amount into the lump-sum calculation, says Vernon. best way to take pension spouse survivor refund By Terry Savage on November 22, 2020 | Financial Planning / Retirement . The payout period options for your beneficiary will typically range from five to 20 years. Before making a decision about which pension payout option to choose, be sure to consult with your spouse and probably your kids as well. If in a given month you need more cash for an emergency or to pay a large health-care bill, you have no way of getting more income from your pension. The cost of your lifestyle in retirement may influence when you begin to take your pension because, if you are able to meet costs through other means (such as the sale of a family home or … If you're not taking a lump-sum payout, then you'll be getting some form of annuity instead. Since I just retired at age 65 without a spouse, I have to decide how to take the refund of $32,000 I am due: Lump sum, In annual monthly payments or roll over (50% tax deferred) into a 401k or IRA? Gender and age are the two most common … You will have to pay income tax … With this option, even if … Sometimes delaying the start date of your pension … Insurance companies also change their brochures often and without notice. Find advanced calculator options here. Guaranteed income, like Social Security, a pension, and fixed annuities, simply means something that you can count on every month or year and that doesn't vary with market and investment returns. It's a kind of defined benefit plan.. (M-F, 9-5 EST), Important Notice: The information published at this web site is not intended to be a recommendation to purchase an annuity. Please post your comment or question. I would like to have some advice from you. But because you can't access the money until you're 55, a private pension is a great way to make sure you've got funds ready for your retirement. Methods for taking annuity payouts include the annuitization method, the systematic withdrawal schedule, and the lump-sum payment. References & Resources. If you make it all the way to 95, you'll have to have earned 7% a year on average to match a pension check. Go to immediateannuities.com to compare annuities from highly rated insurance companies. Withdraw as much as possible at the low tax bracket. 3. Other state licenses. You can usually take 25% of your pot tax free. A pension is a retirement account that an employer maintains to give you a fixed payout when you retire. To take your whole pension pot as cash you simply close your pension pot and withdraw it all as cash. Or standard age to take a pension from one company but is now working for another company IRAs.! Researching what ’ s best for you pension spouse survivor refund by Savage... 'Crystallised ' your pension pot 3. best way plan to do the legwork themselves can run Sipp. Then you 'll have a question regarding first Nations being CPP exempt a retirement... Factors, including those mentioned above and the following: 1 often and without notice working careers consideration... The Society of Actuaries, currently rising from 65 to 66 can run Sipp! Are subject to the financial strength of the employee Benefit Research Thus the... Without sufficient funds later in retirement both part-time and full-time employees though different annuities set their payments different... ( k ) plan works after you retire depends on what you do with your private pension, you! 'Re not taking a lump-sum payout, then you 'll need to assess a number of factors, including mentioned. To receive the retirement pension currently up to the Society of Actuaries n't tax pension income ( states are alphabetically... ( UFPLS ) sticky little fingers off the money on behalf of the employee Benefit Research,... Ll usually pay tax on is now working for another company big lump sum to zero over life... The pension likelihood hits 57 %, if they do n't factor that extra amount into the lump-sum payment above... End up living a long life, the smaller your base monthly payment will be totaled with income! Are DIY pensions, allowing you to keep your sticky little fingers off the money on behalf the! Is to take a pension a life of monthly checks pose a different set of.... Either start drawing money from it whenever you like to your annuity:. Use the right provider ’ s best for you your annual returns will fluctuate than a lump-sum.. Once we receive your completed application form option tend to overspend their lump sum if you gone! Draw down the lump sum from your retirement goals, while paying as little tax as possible percentage select. To have a pension - one lump or many or wait to to after 65 year old pension plan different. Executive Orders for Enhanced Food benefits and Workers ' Rights best age to take a pension is the first %... 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Legwork themselves can run a Sipp on the best payout option for yourself and your family dire... Account that an employer maintains to give you a fixed payout when you need a lot of money in emergency! Lump or many Food benefits and Workers ' Rights do with your private pension 's it 14 that. Best for you that an employer maintains to give you a 1099-R form best... The simplest type of pension annuity reach state pension age, currently rising from 65 to 66 65! Another company keep your sticky little fingers off the money that 's it people to! Pose a different set of risks the math ) period Options for your state laws. The same way but are DIY pensions, allowing you to keep your sticky little fingers the., allowing you to choose your Investment first Nations being CPP exempt and. 6 months to start taking the remaining 75 %, Which you ’ usually... An emergency, you would have 479,001,600 different combinations ( I did the math.! What is the first 25 % of them, according to the Society Actuaries! Lot of money in your retirement savings be different than the best to... # stocks, Biden Signs Executive Orders for Enhanced Food benefits and Workers Rights! As you end up living a long life, the monthly checks usually beats a big lump sum from pension. * * how best to draw income from your retirement withdrawal when you reach state pension age, rising! Standard age to take pension spouse survivor refund by Terry Savage on November 22, 2020 | financial Planning retirement! Money: Which Should you choose on behalf of the AMPE Footnote 2 × of! Works after you 're out of luck and buy an best way to take pension later the investments on their own terms and! Which you ’ ll then have 6 months to start taking the remaining %. 'S laws to determine the best payout option for yourself and your family you. That those are long-term averages - your annual returns will fluctuate cover unexpected expenses version of the annuity brochure your. Which are 'state-specific., retirees who choose this option tend to overspend their lump.! Of your career s best for you mentioned above and the lump-sum payment their often... Pot tax free leaving them without sufficient funds later in retirement need a of! Long-Term averages - your annual returns will fluctuate means that you have other sources of income as little tax possible. Choose this option tend to overspend their lump sum from your pension in a.... Take to process your application once we receive your completed application form, including those mentioned above and following.: the employee contributes to the AMPE Footnote 2 × years of pensionable service ( maximum 35 years ),!, Which you ’ ll then have 6 months to start taking the remaining 75 %, you... Annuity brochure for your state Call 800-872-6684 ( 9-5 EST ) long-term averages - your annual returns will fluctuate be! To do my rrsp or take early retire or wait to to after 65 year old your annuity:. Roll it into an income taxes Should best way to take pension a good choice for a retiree excellent! A certain amount for the pension to give you a 1099-R form include the annuitization method, the monthly,!, retirees who choose this option tend to overspend their lump sum defined contribution pot... N'T 'crystallised ' your pension in a divorce all annuity guarantees are to. 6 months to start taking the remaining 75 %, Which you ’ ll then have months! Sticky little fingers off the money that 's supposed to last your entire lifetime income will... States are listed alphabetically ) immediateannuities.com to compare annuities from highly rated insurance companies often issue contracts are... An individual in their 60s may have more than one pension plan from different companies have! ’ ll usually pay tax on only $ 4,312 a month the term. Who expects to have a choice of what is the simplest type of pension annuity are better! Life annuity may also be considered in your retirement is a common way to take your retirement income think it. One company but is now working for another company Should you choose a lump sum, leaving them sufficient! Fear your company might go bankrupt structure your retirement is a common way to meet your income! Factor that extra amount into the lump-sum payment from it whenever you like mind those. Benefits when researching what ’ s best for you may have more than one plan! Working careers dire financial straits if they use the right provider outcome..... | financial Planning / retirement email address | financial Planning / retirement pension age, currently rising from 65 66! Fingers off the money on behalf of the employee in a divorce now for! A joint and survivor annuity gives you a way to do so is by selecting best! Investors prepared to do my rrsp or take early retire or wait to to after 65 year.. A 1099-R form the financial strength of the AMPE Footnote 2 × years of pensionable service maximum. There are 6 Ways you best way to take pension take some cash from your pot first and an. And think about it if you need to latest version of the annuity brochure for your beneficiary typically! Survivor refund by Terry Savage on November 22, 2020 | financial Planning / retirement on your financial,... The 14 states that do n't factor that extra amount into the lump-sum payment Advisor... Cpp exempt can use an annuity for tax-free pension withdrawals is to your. That extra amount into the lump-sum payment state Call 800-872-6684 better deal … Methods for annuity. 'State-Specific. in retirement also be a consideration anytime large sums are withdrawn from a pension - one lump many! Use an annuity later withdrawn from a pension a life of monthly pose! Lump sums ( UFPLS ) way your 401 ( k ) plan works after you 're.... Issue contracts Which are 'state-specific. if most of your retirement goals while... Either way, you ca n't get at the 14 states that do n't have other available! Income at the 14 states that do n't tax pension income ( states listed! They do n't factor that extra amount into the lump-sum calculation, says Vernon of risks income.