Pension Payments – Annuity or Lump-Sum?

I’m often asked by folks approaching retirement whether to take their pension as a lump-sum payment or as an annuity (a stream of monthly payments). Investment News recently published this excellent piece on this topic which is worth reading.

As with much in the realm of financial planning the answer is that “it depends.” Everybody’s situation is different. Here are some factors to consider in deciding whether to take your pension payments as an annuity or as a lump-sum.

Factors to consider

Among the factors to consider in determining whether to take your pension payments as an annuity or as a lump-sum are:

• What other retirement assets do you have? These might include:
  • IRA accounts
  • 401(k) or 403(b) accounts
  • Taxable investments such as stocks, bonds, mutual funds, or others
  • Cash and CDs
• Will you be eligible for Social Security?
• Will the monthly pension payments be fixed or will they include cost of living increases?
• Are you comfortable managing a lump-sum yourself and/or do you have a trusted financial advisor to help you?
• What are your expectations for future inflation?
• What is your current tax situation and what are your expectations for the future?

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Check out Roger’s popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments and retirement plans. Follow him on Twitter @rwohlner.