Pension or LIRA?

Q – I currently am a member of a municipal employees pension system and have contributed to it for 10 years. However, I no longer am employed with the municipality having left for the private sector which does not have a reciprocal agreement. One of the options available to me is to keep it where it is and at normal retirement age (19 years away) I can expect a modest pension indexed for inflation. Another option available is to move the “commuted” value of the pension benefit to a locked-in retirement account (LIRA), where I may direct and manage its investment, and will turn into a income fund at retirement age. Which option do you recommend and why? Thank you for your advice. – A.M.

A – We get this kind of question a lot and there is no simple answer. It depends on the exact terms of the pension offer and what kind of return you might expect managing a LIRA on your own.

As a general rule, however, we tend to prefer the “bird in the hand” philosophy. By taking the deferred pension, which has the advantage of being indexed, you know exactly how much income you will be receiving and can plan your retirement financ accordingly. The LIRA is a crapshoot. Maybe you will do better — but maybe you won’t.

Only you can decide if you want to take that risk. – G.P.