Lump-Sum Payout

There was a time when most people had three sources of income in retirement. One was their savings, the second was Social Security and the third was their pension from work. Today, very few workers enjoy the security of a pension, and retirement income is dependent on each person’s ability to save, plus Social Security.

For those remaining workers who have pensions, at some point a decision must be made whether to take their pensions over time or to receive the accrued value as a lump sum. A pension can be a stable stream of income in retirement, or it could be a lump sum that is invested. There are pros and cons to both.

Investopedia’s recent article, “Pension Planning: Lump Sum Versus Monthly Payments,” says that the pension provider takes the risk of both sub-par market returns and the possibility that the retiree will live longer than expected. The article raises several thoughts to consider, when making the decision: