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I had to make this decision recently, and went with monthly pension payments, starting soon. I like knowing that pension and social security, when I take it at 70, should cover my monthly bills. And very importantly to me, I have a family history of Alzheimer’s and fear cognitive decline. I’d rather have money coming in each month from pension and SS, and going out each month to pay bills than have a much larger portfolio I might mismanage or be scammed out of. Finally, my former company tried to make the lump sum sound enticing, and said once I made a decision, I’d never have the lump-sum option again. Then they sold the pension plan to an insurance company They offered me the lump-sum option again. If the lump-sum was to their advantage, I figured the opposite, a pension, is better for me.
I think you’re right to be suspicious: Companies wouldn’t push the lump sum option so hard if it weren’t a good deal — for them.
For the majority of people I think monthly pension payments is the way to go. It’s a complicated decision, but most pension administrators are better equipped to mange the investments and risk than the average citizen. I’ve had a chance to review three different pensions (large aerospace company, large insurance company, and national trade union) and each computed the lump sum in very different ways, You need to really understand the details before deciding.
My wife took the lump sum in 2000.
The right move in hindsight.
With one exception, that’s a resounding take monthly pension payments.
That exception is if the plan sponsor has underfunded the pension plan or if the sponsor is not a fiscally sound organization. However, even then in 2021 at age 65 the PBGC will guarantee up to $6,034.09 per month for a single benefit and $5,430.68 per month for a 50% J&S pension.
While a large cash payment is enticing and many people use the logic that if they die early someone will always get the remaining money, I think the security of a regular monthly income far outweighs that for the vast majority of retirees.
Look at the debates about withdrawal rates, how much you need to retire, setting budgets and all that goes with managing a lump sum. To me it’s very clear that most people will be better off with a steady income over the risk and stress of managing a portfolio and all that goes with it.
When I was negotiating pension benefits the unions were strongly opposed to lump sum options because they knew what could happen if misused and they had experience with that in other employer plans.
If you want to leave cash to others buy life insurance or have non-retirement investments in addition to your pension.