retirement dilemma

[mrmonks]

I am approaching retirement in the next year or two....I have a pension and a choice of taking the monthly payment or cashing out and taking a lump sum...Is it better to take the lump sum and invest it myself or to take the pension?

[disneysteve]

There is no easy answer. You need to consider all the variables and run the numbers. It also depends on you and how comfortable you are investing on your own. You need to consider your age and health. You need to think about your heirs and what survivor benefits the pension has.

Here's one article of interest:
USATODAY.com - Should you take a lump sum?

[jIM_Ohio]

T Rowe Price had an article in their quarterly newsletter on this. Without reprinting, here are some things to consider:

1) most pensions are NOT indexed to inflation
2) how the company calculated the lump sum needs to be know (what is lump sum vs monthly pension payment)
3) are you willing to learn how to invest the lump sum?
4) If your family has a history of dying young, take the lump sum
5) if your family tends to live 20 years older than everyone else, the pension might be a better deal.
6) There is more risk associated with the lump sum in most cases.

[disneysteve]

5) if your family tends to live 20 years older than everyone else, the pension might be a better deal.

Another option in this case is to take the lump sum and buy an immediate annuity that might have more attractive terms. Or compromise and annuitize some of the money and invest the rest.

Again, no easy answer, and you won't know if you made the right choice until you're 90.

[LivingAlmostLarge]

My mom is 56 and took her pension last year. It's for life and with the way longevity runs in our family it's the better choice. And I'll explain why for a couple of different reasons.

One her lump payout was WAY less than her pension. She'll run through the pay out in 4 years. Her payout was $200k. But her monthly benefit is about $48k/year. Sure she could have bought an annuity, but I doubt they would have paid her as much.

Second our life expectancy is well old. My great-grandma is alive and kicking at 99 and my grandma is 80. So my mom has a very good chance of living a very long time and screwing the system.

But everyone's life history is different and annuity payout is different.