| Description | Annual or monthly payments paid to you and potentially to your spouse (if there is a survivor benefit) for life. | A large, one-time upfront payment to you. |
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| Exposure to Stock Market Downturns | LOWER – The payments are not impacted by market downturns. And if the bankruptcy of your company is a concern, the Pension Benefit Guaranty Corporation guarantees annual payments (from private pensions*) up to approximately $60,000. | HIGHER – Even if you invest the lump sum into a diversified portfolio, your nest egg will still be more exposed to downturns in the stock market than if you had chosen the annuity. |
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| Exposure to Inflation | HIGHER – Unless your pension is inflation-adjusted, the buying power of future payments could be significantly eroded by inflation. | LOWER – Investing the lump sum in a diversified portfolio gives you a better chance of outpacing inflation during your retirement. |
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| Risk of Running Out of Money | LOWER – The annual payments are for life. And if you choose a joint and survivor pension, then your spouse will still receive payments even if he or she outlives you. | HIGHER – If overspending or a market downturn wipes out your nest egg prematurely, then you may have only your Social Security payments to live off of. |
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| Other Factors to Consider | CHEAPER THAN RETAIL ANNUITIES – Your pension annuity almost always provides a higher annual amount versus what you would receive if you purchased a retail annuity with the lump sum. However, choosing a pension annuity and not deferring Social Security is not advisable. | HIGHER SOCIAL SECURITY PAYMENTS – If choosing the pension annuity means you are unable to defer Social Security, you are almost certainly making a costly mistake. Research shows that if instead you use the lump sum to bridge the gap and defer Social Security, you end up with higher income in all future years.
FLEXIBLE – Taking a lump sum gives you more flexibility on when and by how much to spend your money. |
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