Financial Planner 43551

Pension Income or Pension Lump Sum?

In Income Planning, Investment Management, Steward Articles, The Insider by Adam Cufr

An expert that I greatly respect in the financial planning industry recently published an article describing how to evaluate whether to choose a pension income option or a pension lump sum from an employer upon retirement. While I won’t subject you to the almost-overwhelming amount of technical data presented in the article, I will tell you the conclusion: it depends. In fact, the comments on the article were so wildly differing in their viewpoints, and the approaches so vast in number, that one would be hard-pressed to know what to do with the information.

Much like last week’s article, “Math or Emotion: It Depends,” the best course of action to take is generally very personal. Math can go a long way toward the proper decision, but without factoring in the softer issues, we may be leaving too much on the table, so to speak.

Here’s an example regarding the pension income versus lump sum decision: in a circumstance where the math points clearly toward a person choosing the pension income rather than take the lump sum, a retiree may conclude that they’re too concerned that the pension plan their employer maintains seems too risky due to being underfunded. Alas, the retiree takes the lump sum in lieu of the calculations of income offered by the two options. In fact, most people have no idea whether their employer’s pension is adequately funded; they just don’t trust that it is. Game-set-match…the lump sum it is.

You know what? It’s okay to make that decision. The reason is that there are seldom any calculations that are fool-proof because there are too many variables to consider that are outside our control, either now or decades into the future. I have advised some people to choose the lifetime income option and others to take the lump sum. Again, it depends.

Next time you’re away from home, consider all of the different routes you can take to get you back into your family room. The same is true of much of retirement planning. The key is to have factored in your personal needs and desires so that the choices you make reflect you and your wishes. We’ll give you the math and the roadmap, you choose the route to take.

Whether you’re considering your pension options, Social Security claiming strategies, Roth IRA versus Traditional IRA, or paying off your mortgage early, the benefits of holistic planning cannot be underestimated.

Let us know how we can help you or a friend navigate these questions. As many options as you have, there are certainly some roads that are less perilous than others. Safe travels.

All the best,

Adam Cufr Signature

Adam Cufr, RICP®