What Should I Do With My Pension After I Retire?

Q. What should I do with my pension monies after retiring? I know that if I take it all I will be heavily taxed. Or I could take most of the money after retiring and then buy Certificates of Deposit (CDs). I really don’t see the growth factor of investing it back in stocks.
— Retiring soon

A. Before making any investment decision, you need to see where your pension funds fit into your overall financial plan.

Will you need the funds to cover your cash flow needs? Or do you want to pass the funds to your heirs someday?

Having a better understanding of your other retirement income resources will help you understand what investment risk you should take with the money.

Consider meeting with a financial adviser who will look at your overall financial plan and see how these funds fit in.

Now, you can invest a pension in CDs.

If you have the option to roll over your pension (or 401K or a lump sum from a defined benefit pension plan) into an individual retirement account (IRA), you have the ability, inside the IRA, to invest the monies into CDs, stocks, bonds, mutual funds or just about any investment vehicle, Brian Power, a certified financial planner with Gateway Advisory, LLC in Westfield, New Jersey, said.

Doing this as a rollover would avoid the tax issues you mentioned in your question.

Power said opening an IRA at a brokerage firm instead of a bank may be your best bet if you want to purchase CDs.

Even though you might get a slightly lower yield through a brokerage account than you would by buying directly from each bank, the brokerage account will allow you to buy CDs from many banks with the ease of having one account.

“Since each CD that is purchased, assuming they are all different banks, has the $250,000 FDIC insurance coverage, you don’t have to worry about the safety of having more than $250,000 worth of CDs in one brokerage account, Power said. Before you commit to an investment, be sure to research any fees that may be associated with your choice.

Learn about laddering CDs in this story.

[Editor’s note: Thoughtful retirement planning, like smart spending, saving and credit habits, is important to your overall financial well-being. You can use this tool to track financial goals, like your credit scores, for free on Credit.com.]