Pension Planning

   Make the Right Decision: Lifetime Payout or Lump Sum

Many companies, like Boeing, have recently offered retiring employees a lump sum pension instead of the traditional lifetime payout option. Deciding which option is right for you depends on several factors and it isn't a one-size-fits-all decision. The specific terms of the deal and your individual situation both play a role in whether you should accept the lump sum or opt for that monthly pension check.

But the key consideration is life expectancy. If your health is poor or longevity does not run in your family, then the lump sum option might be the better choice (if you are married, consider your spouse's health and longevity as well). The lump sum payout is usually a large up-front payment and once you receive it, the money is yours to keep and can be rolled directly into an IRA tax-free. The lump sum can also be inherited by other family members whereas the monthly pension vanishes when you and your spouse pass away. You can't bequeath that monthly pension payment to your children, but they can inherit the lump sum.

On the other hand, if you are in good health and longevity runs in your family, then the monthly pension may be the best choice. There is a breakeven age at which the lump sum and monthly payout are roughly equal assuming a certain rate of return. If you pass away before the breakeven age, the lump sum would have been better. However, if you live beyond the breakeven age the monthly option is better. Obviously we don't know in advance how long we will live so the decision is not clear cut.

If you are facing this decision, make an appointment with me and I can run an analysis and show you a side-by-side comparison of the lump sum vs. monthly pension option. One of the most important things I can do is provide you with valuable information so that you can make your own educated decision. Of course, there is no cost for this consultation.