If times are tough and you’re thinking about applying for a pension advance, you might want to rethink that plan.
The Federal Trade Commission warns that pension advances (also known as pension sales, loans, or buyouts) can cost a pretty penny.
What you might not know is that many pension advances require that you sign over all or some of your monthly pension checks for five to 10 years. Consequently, your lump sum payment will be less than the pension payments you sign over.
In addition, pension advances often require purchasing a life insurance policy with the pension advance company named as the beneficiary. This is done to make sure that the company gets paid in the event of your death.
If you’re still considering a pension advance, you’ll need to get answers to a few questions.
Find out if you’re eligible. Not all pension advances are legal. Depending on the type you have, you might not be able to sign it over.
Know the cost. Ask for the APR in addition to additional fees such as commissions and life insurance.
Research the tax implications. Receiving a large lump sum could place you in a higher tax bracket. Speak with a tax adviser for guidance.
For more information on this topic, read Pension Advances: Not So Fast. Here, they discuss some alternatives to pension advances and offer additional tips.