When is it better to take a pension versus a lump sum payout?

Q: When is it better to take a pension versus a lump sum payout?

A:  As always, it depends.  If you are in good health and/or married, in most cases the pension is the better deal. With most pensions you have a joint and survivor annuity option that allows your spouse (wives usually outlive their husband) to get a portion of the payment after you die.  Further this is a guaranteed income for the rest of your life.  It is not subject to the fluctuations of the stock market. While most pensions have no inflation provisions, that guarantee is worth a lot.  There is a small chance that the company and the plan could fail but most pensions are covered by federal insurance up to about $5700.00 per month.

If you have health issues or no spouse, taking the lump sum and investing it may be best.  In addition, if you have no savings the lump sum may provide you with a nest egg you can tap whereas once you elect and start taking your pension, the money is no longer available.  Remember if you do take the lump sum, roll it over into an IRA so you are not taxed on the distribution.

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