Right, so in spite of everything or perhaps because of everything in your career, you have arrived at a retirement decision. Make that semi-retire, because if you are like many close-to-retirees interviewed recently, you are not confident that your pension portfolio can last through your retirement.Unless you are seriously wealthy, your Bermuda pension may be your largest lump sum asset. We aren't counting your home, if you are indeed fortunate to be a property owner. Yes, it is an asset, but you have to live somewhere; so in retirement planning terms, it is considered an illiquid asset, not easily converted to excess cash by downsizing in Bermuda. If you've always enjoyed control, tranquility and independence within your home space, you may be reluctant to accept a condo-style substitute. However, this is a new time, and a new place in your life as you enter the relatively unknown territory, that of a new retiree. The best thing is, you still have choices, as long as you continue working.It is time to choose your pension distribution method. Pensions are complex structures; the investment portfolio may contain hundreds, possibly thousands of security positions managed by an investment professional, and custodied in various financial institutions in various countries. The distribution choices are computed using confusing-to-the-layman actuarial assumptions and calculations.There are only two main distribution choices allowed by the Bermuda National Pension Scheme legislation: an annuity, or a drawdown account. Those retirees with pension balances below a drawdown threshold (as defined by your pension provider) have only one choice the annuity. As discussed last week, you are not allowed to take a lump sum (except for the small excess voluntary contributions), unlike Bermuda government employees who can receive up to 25 percent of their final calculated pension in a lump sum takeaway.How does a drawdown account work? Let's assume that your pension portfolio is still fully invested in capital markets at retirement time. You chose a balanced investment asset allocation (50 percent fixed income-50 percent stocks), and have been pretty comfortable with the earnings performance.At retirement, your pension will be transferred out of your soon-to-be-left-behind employer roster into your own individual pension account while the investment allocations remain intact. Significantly, your pension drawdown account remains under your control relative to changes in the investment mandate. Each year, you will receive a percentage distribution from the portfolio based upon your age and mortality, generally around four percent of the total accumulation. If the drawdown investment account appreciates with the markets, you have the continued opportunity to actually make up the difference withdrawn each year. Of course, if markets suffer losses, your portfolio may be negatively affected as well. At some point in the future, generally in your middle to late seventies, pension law dictates that you must convert the portfolio drawdown account to an annuity structure.An annuity is a legal contract between you and an insurance company. You will sign over the entire proceeds of your pension accumulation account to an insurance company. In return, the insurer guarantees to provide you with an actuarially computed monthly pension distribution for a certain term limit, i.e. five, ten, twenty years, or payments for the rest of your natural life. The insurance company will also attach an interest rate coupon to your annuity, but it is important to note that the interest rate will not change over the life of the contract. You no longer will have any opportunity to grow your pension portfolio in investment markets. Once the annuity contract is executed, all opportunity for investment appreciation stops.There are variations on these contracts to accommodate the grave concerns (pardon the pun) that the annuitant (you, the retiree receiving the benefits) will pass prematurely before, say, your ten-year annuity or your annuity for life full benefits are paid. Five and ten year term annuities are structured with a guarantee that if you die prematurely before the end of the term, say ten years, the residual balance of your total pension accumulation will be paid to your designated beneficiary. Choosing the Life only annuity, payable to you during your calculated remaining lifetime, means that no residual balance is available after your passing. However, the annuity with refund choice protects your beneficiary by paying out the balance remaining between the initial sum used to purchased the annuity and the payments made to the annuitant retiree upon your passing.Publishing space does not permit total detailed explanation. For the complete article this week relating to annuities along with a comparison chart of the various payment options, please go to www.marthamyron.com/calm/Coming soon: Bermuda Investment Primer your pension is an important investment. Pay attention by reviewing your December 31, 2012 pension investment statements for completeness, and portfolio performance in mid February. Later: We've recently seen the liquidation of an insurance company. How do you assess the financial strength of your insurance company that will guarantee your annuity? Do you know and understand the fee structure of your pension portfolio now, and in the annuity conversion?Attention: Citizens International, US citizens, US green card holders, US residents for income tax purposes, and dual citizens of Bermuda and the US. If you are invested in a Bermuda (foreign pension) now being converted to an annuity, and you have never declared your pension income and the annual appreciation in your pension account, you have additional paperwork. Under current US tax law, you have tax filing, reporting and liability obligations. Your distribution is not tax-free. Additionally, you are required to report your pension as a foreign financial account under FBAR regulations, as well as (new this year) being considered a specified foreign financial asset (reportable under certain thresholds).Don't even think about ignoring this tax (or vexing) issue. Your pension provider / insurance company is considered a non- financial foreign entity by the US Treasury / Internal Revenue Service. Under FATCA (the Foreign Accounts Tax Compliance Act) the firm will be required to report your pension balance, account number, your name, address, etc. to United States tax authorities.Martha Myron, CPA CFP(US) TEP JP www.marthamyron.com is an international Certified Financial Planner™ providing Financial Counsel for Cross Border Living™ on international tax, estate, and retirement strategies for Bermuda residents with US connections, and US citizens living and working abroad. Member of the American Citizens Abroad Tax Advisory Council. www.americansabroad.org Contact mmyron[AT]patterson-partners.com or 296 3528 at Patterson Partners Ltd.