For those fortunate enough to retire with a pension, one of the most important decisions is how to take the benefit.
In most cases, you’ll have two primary options:
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Take a lump sum and roll it into an IRA
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Annuitize the pension and receive fixed monthly payments for life
The guaranteed monthly payment can feel comforting, and in some situations it absolutely makes sense. This is especially the case for retirees who value simplicity, want predictable income, or have limited other guaranteed cash flow. However, the trade-offs deserve careful consideration.
Fixed pension payments are typically not adjusted for inflation, which means purchasing power can decline over time. In addition, once you annuitize, the decision is usually permanent. You lose flexibility, access to larger withdrawals, and in some cases, the ability to pass remaining value to heirs.
A lump sum, on the other hand, provides control and flexibility. It allows for investment growth, coordinated tax planning, strategic withdrawals, and estate planning benefits. The remaining balance can also pass to beneficiaries.
There isn’t a universal “right” answer. The key is modeling both scenarios—factoring in taxes, longevity, inflation, lifestyle goals, and other income sources—before making a decision. What feels safest upfront isn’t always what provides the most long-term value.
Have a question or want help understanding your options? Contact us today to schedule a complimentary Q&A with one of our team members.
