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 advisor who will look at your overall financial plan and see how these funds fit in. If you don’t have an advisor, consider a free money makeover with NJMoneyHelp.com.

Now, you can invest a pension in CDs.

If you have the option to roll over your pension (or 401(k) 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, said Brian Power, a certified financial planner with Gateway Advisory Group in Westfield.

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.

But, Power said, by using a brokerage IRA to buy CDs, it allows you easier access to multiple banks without having to open up accounts at each bank.

“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.

Learn about laddering CDs in this story.

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.

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