Pension Decisions: Lump-sum or Lifetime Annuity?

Preparing to retire or changing careers can be stressful; sometimes you don’t have a choice in the timing! During these transitions, you are required to make decisions that will impact the rest of your life.  One key decision you might face is deciding between a lump-sum, lifetime annuity, or a combination.

With the passage of the SECURE Act, employees will eventually have more lifetime income options within employer sponsored plans.  As such, before deciding, there are several factors to consider, which include:

Your spending habits, other assets, and income sources

  • Do you spend everything you receive?
  • Do you have other sources of income?

The proposed investment strategy for the lump-sum payout

  • Can you stick with the proposed investment strategy during a market downturn?
  • In which direction are interest rates moving?

Your future expenses and inflation assumptions

  • Is there a cost of living adjustment (COLA)?
  • Will the COLA keep up with inflation?

Your and your spouse’s expected longevity

  • Whose life expectancy is longer?
  • Is spousal continuance an option?

Legacy Planning

  • The lifetime payouts end upon your or your spouse’s death. What do you want your beneficiaries to receive?

“Running the Numbers”: Present Value Calculation

  • What is the expected payout?
  • How does it compare to expected returns for other assets?

If you or a loved one needs guidance in weighing the pension or annuity options, please call at your earliest convenience.  This is where a trusted financial adviser can guide you to the decision that most fits your personal and financial situation.

All the best,

Your Team at Gamble Jones