The partial lump-sum option plan of payment (PLOP) may be a very valuable option to members of STRS Ohio at retirement. STRS Ohio PLOP enables retirees to receive six (6) to thirty-six (36) months of their single life annuity benefit in a lump sum. This lump sum may be rolled over to a retirement plan such as an Individual Retirement Account (IRA) or the member may receive the lump sum directly. Careful consideration should be given to the tax consequences of your election prior to making a decision.
So when may the PLOP make sense? Let me be clear, there are no “one size fits all” solutions. But I believe there are certain circumstances that make the PLOP an attractive option. Let’s take a look at a few reasons why it may make sense to consider the PLOP.
Better Control Taxable Income
Let’s assume your monthly cash flow needs are met with only some of your STRS benefit. In other words, you don’t need all of your monthly pension to meet your desired standard of living during retirement. This may be because you or your spouse also have other sources of income such as Social Security, pension, or investment income.
If this is the case, the PLOP may enable you to reduce your ongoing monthly pension and, thus, better control your taxable income. Careful consideration must be given to the long-term tax consequences of this decision and not just the immediate benefit a lower monthly income may provide. However, if you find yourself not needing your full STRS pension to meet your desired standard of living, the PLOP may be worth a look.
Create Liquidity (i.e. “Ready Money”)
The PLOP may help you create liquidity to meet certain goals. If you do not have outside assets or savings available, the PLOP may create a pool of money to earmark for some of your goals. For example, funds from the PLOP may be used to create an emergency fund or pay cash for a home improvement project. Depending on your unique goals and tax situation, the PLOP may be a good option to create “ready money.”
Leave Assets To Your Heirs
If leaving behind assets to your heirs is a high priority, the PLOP may help you achieve this goal. Some STRS plans of payment provide an ongoing benefit for you to leave funds behind to a beneficiary(ies). However, the PLOP may enable you to take more control of how much is left behind and who it goes to. Electing to receive the PLOP and investing it may result in a loss of value, however, so this is not a guaranteed outcome.
These are three real-life examples I’ve seen when helping STRS Ohio members determine whether the PLOP makes sense for their unique situation. A thorough understanding of your goals and overall situation is necessary to determine whether the PLOP is in your best interest.