Question: Should I take my employer pension plan in a lump sum or take annuity payments at retirement?

retirementLike many questions, there is no one-size-fits-all answer to this important question.  Professional advice is very important before you make a decision about how to receive your pension benefits.

Here are some things to consider:

  • What is your health status and possible life expectancy? If you are in poor health when you retire or you are convinced your life expectancy may be shorter than statistical averages due to your own health history or that of your family, you may want to choose a lump sum.
  • What is your marital status?   If you are married, you will want to consider your spouse in any decision you make about your pension. If your spouse is considerably younger than you or doesn’t have a pension, that may override any consideration of your own health. It could be wise for your spouse’s sake to take an annuity payment with protection for your spouse for his or her lifetime.
  • What other retirement assets do you have? It is important to coordinate any decision with all sources of retirement income and if you do not have a guaranteed income from any other source, it could be beneficial to choose the annuity option. If you have other income payments, the lump sum may be important to give you some liquidity that an annuity does not offer.
  • It is important to consider the credit worthiness of the party guaranteeing the annuity payments. When you agree to a stream of payments over your lifetime and perhaps even the lifetime of your spouse, you need to be comfortable that payments will continue for the duration. If you have legitimate concerns, then you may be better off with the lump sum.
  • Are you capable of managing the lump sum for the remainder of your life, or do you have a trusted advisor who can do that for you? When you are paid an annuity payment, there is another party responsible for investing the funds and sending you a payment each month. When you take a lump sum, then it becomes your responsibility to either manage the assets or hire someone else to do that.

This is a critical decision and usually one that cannot be changed once recorded.  We encourage you to seek the advice of a professional with expertise in retirement income planning before confirming this decision with your employer.

This report is a publication of Guelich Capital Management LLC, a registered investment advisor. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

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