Q: I am a 64-year-old male and will retire this May. Presently my only bill is my $2000/month house payment which still has 14 years to go. My company is offering me a lump sum package of my pension account of $500,000 or I can take a monthly pension of $2700 with my spouse getting $1300 per month if I decease before she does.
Is it better to take the lump sum and turn it over to my investment planner or take the monthly pension?I also have about $500,000 divided up between my 401k and a IRA. Since my wife and I plan on traveling once we retire I would like to bring home $6000/month to cover our house, necessities and travel. My social security benefit will be around $2400/month.
A: I think your question gets into a very significant topic of what you need versus you want and where those sources of income are coming from. Looking at your pension, it’s about a 6% cashflow to you and a 3% cashflow to your wife if you were to decease. The latter is fairly unimpressive but 6% is a good cash flow from a pension. To take this question into further consideration, some things I would have to find out from you to give you our opinion are:
- Family longevity
- Is the pension inflation adjusted or stagnant over the life
- Risk tolerance as an investor
- Long-Term Care planning
- When do you plan to draw SSI and how old your wife is
- Flexibility of assets vs fixed income
Once we know these things, this will help further determine whether a lump sum or pension makes sense for you.