What’s Best? A Lump-Sum Payment or Pension?
When considering retirement, one of the key decisions you will need to make is whether to take a lump-sum payment or a monthly pension.
In a lump sum, the funds from your retirement account will be wired to the institution you choose, or a check will be made out to that institution to be paid into your account. If you choose the pension, you will start receiving your monthly payments upon retirement. Please note, whichever decision you make, it is irreversible.
Making this decision really depends on your circumstances, including your retirement income, expenses, life expectancy, and any wealth transfer plans you establish. This can sound overwhelming, but we can break it down for you in a brief, concise way.
What to Expect if Choosing the Pension
The most attractive reason for this decision is the word “guaranteed”. It can be comforting to know you will receive monthly payments according to the terms of your pension for the rest of your life. Also, depending on your election, your spouse can also have this same protection.
There are negatives to consider as well. A monthly pension means you don’t have any flexibility, and you do not have any control over withdrawals. There’s no way to earn more to compensate for inflation. And, once you and your spouse are gone, the benefits terminate. There’s nothing to leave behind to your loved ones.
What If the Lump Sum Is Your Choice? What If
You Choose the Lump Sum?
Though it may seem harder to take a lump-sum payment, this is the most common choice. First and foremost, you now have control of your money. This will allow you to adjust with the uncertainties of life. For example, if you would like to purchase a boat, build a house, help your kids or grandkids, take vacations or manage higher health costs, you have the means to do so. Also, gaining the flexibility to invest the assets is paramount. Another benefit is the ability to manage your tax liability as you age as you control your withdrawals.
Lastly, the remaining assets at death will be passed along to your beneficiaries. After working your whole life to accumulate these assets, it would seem appropriate to pass these assets to your heirs rather than having them disappear. The biggest obstacle with choosing the lump sum is uncertainty — the fear of outliving your money or what to do with it.
How to Make a Decision
This choice can be difficult and requires a great deal of thought and deliberation. It is best to look at all the pros and cons before determining which path is best for you and your family. This is where the benefit of having an experienced financial advisor who specializes in retirement decisions is vital.
With over 27 years of experience in assisting retirees with their IRA Rollovers along with being a Chartered Retirement Planning Counselor, I am well equipped to assist you with this decision. Please contact me at 504-322-4956 to discuss further.
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