Q: I have a company pension that will pay me lump sum of $730,000 cash or take as a pension at $40,700 per year. The pension is not adjusted for inflation; however, it is a 100% joint for me and my wife. Which do you recommend I take?
A: First off, congratulations, you are one of the lucky few that still have the option for a pension in retirement. One of our partners, Wes Moss, just wrote about this in his book, You Can Retire Sooner Than You Think.
Here is the excerpt:
Making the Right Choice: Pension versus Lump Sum
The current temperature of the economy is causing many companies to offer their employees the option of a lump-sum payout, rather than collecting the pension payments they were originally promised. It’s a hard decision for people to make, especially with the big pile of money staring them in the face. Here’s an easy checklist to help you navigate the decision:
- Take your monthly payment and multiply it by 12.
Example: $2,000 x 12 = $24,000
- Divide that number into the total amount of the lump sum being offered.
- If the number you come up with equals 6 or 7 percent of the lump sum being offered, consider keeping the pension.
- If the number you come up with is below 6 or 7 percent of the lump sum being offered, consider taking the lump sum and creating income by investing it.
Of course, there can be other factors like health and how much income you actually need in retirement.