Pensions: Take Lump Sum or Annuity?

When you retire and are eligible to withdraw from your company’s pension, you’re often two options. The first is keep the pension as an annuity and receive payments each month that you and, if you have a spouse, your spouse will receive for as long as you both are alive, it’s called a joint-and-survivor annuity. The other option is to take the amount out as a lump sum and move it to an IRA. There are benefits and drawbacks to both options.

The main benefit is that you cannot outlive the annuity, it’s guaranteed payments for as long as you live and something you can depend on. The drawback is that if you reach an early end, any value still left in the annuity cannot be passed onto your heirs.

Lump Sum
Here, the benefit is that if you do reach an early end, you can pass on the value of the IRA to your heirs but the risk is that you outlive the funds inside the IRA.

So, that’s the tradeoff… and there’s a good chance you’ll live a very long time. 🙂






One response to “Pensions: Take Lump Sum or Annuity?”

  1. […] At My Retirement Blog, I discuss the decision between taking a pension as a lump sum or as an annuity. […]