Taking a Pension or Lump Sum: What Would You Do?

lump sum or pensionCash now, or regular payments later?  Would you rather take a lump sum up front, or take periodic payments over time that seem to add up to more money overall?

A lot of people like the latter, and prefer to take money over time.  That is, if they’re fortunate enough to have such a pension or similar arrangement.   I suspect that the idea of getting a lot of money all at once is also scary to some people, and they’d prefer to be on some type of payment schedule instead.  You know, kind of like a paycheck system where your life is based on your income.

That’s all great, but do you see any risks here?  This may or may not apply to you – it doesn’t actually apply to me – but it’s still fascinating how some of these decisions are made.   Personally, I would go for taking money up front instead of a promise to be paid later.  There is something about removing future risk, and maintaining control, that seems appealing.

I’ve read enough lately about pensions that are being impacted by change, and retirees potentially losing out on some benefits that they thought they were getting.   While much of this might not have been executed just yet, there have been discussions in the news surrounding pensions in Detroit, the state of Illinois, as well as people who have served their country.

Can you imagine being older and in a position of needing money, thinking that you had an solid arrangement in place that you had earned with prior work, only to have the terms of it changed?  Meaning, you weren’t getting more than you thought, but will see things get cut in some way, shape, or form.  While it seems flat out wrong to me, the reality is that “right or wrong” doesn’t always matter in the real world.  Sometimes it is what it is, and we just have to successfully navigate the landscape.

While pensions aren’t exactly common with younger workers, I think there are some lessons we can learn from the whole experience.   The big thing, to me, is that there is something to be said about actually having control over money up front.   In any situation, whether you’re asking if it’s better to take a lump sum or a pension, or just really any other situation of money now vs. promise later, this should be considered.

You just never know what could happen.  Actually, even if you have the money in your possession, anything could happen.  There was talk about a tax on bank deposits in Cyprus within the past year, so clearly there are reasons money in hand may not be risk-free either.  The bigger point is that the more control we have, and the more we can anticipate what might go wrong, the better prepared we can be to protect our hard-earned assets.  And, better yet, be in position to grow and prosper!

My Questions for You

Would you be naturally inclined to take a lump sum instead of a pension, or would you go for the opposite?

Are you risk-averse like me when it comes to future promises to be paid, or are you less concerned about promises being compromised or simply not kept?


  1. says

    I would want to know what happens to the pension if you pass away, would it be left to your spouse? I think generally taking the lump sum gives your more flexibility in the long run.

    • Squirrelers says

      Brian – great question, and an example of how we need to ask the right questions. My guess, in a lot of cases, is that pension amounts either cease upon passing, or get diminished to a reduced amount for the surviving spouse.

  2. Kathy says

    I totally expect the government to someday implement a wealth tax or a band deposits tax. They are salivating over the trillions of dollars in retirement accounts as though they (politicians) are somehow entitled to some of the money we worked so hard to save for retirement. Our pension comes monthly and I probably wouldn’t take it lump sum because I don’t want to lose the principle. However I totally want to have complete control of other retirement accounts such as IRA, Roth etc. and sure as heck don’t want the government to get their grubby paws on that.

    • Squirrelers says

      Let’s hope that it doesn’t come to that point, where deposits are taxed. But, what’s to stop it? It’s a legitimate concern for the future. I do prefer the control of money anyway, all other things being equal.

  3. says

    I have heard too many horror stories from friends about someone they knew taking out a lump sum. In my opinion, the risks involved with taking a lump sum far outweigh the risk of your employers pension fund not being able to pay it’s obligation to you. The PBGC will also pay up to $57,477 per year, maybe more depending on when you file a claim, if your employer’s plan terminates.

    • Squirrelers says

      Now that’s interesting, about being able to collect up to that amount. I wonder how that relates to the actual amount originally due, in terms of a percentage.

  4. says

    My mom had the option for a lump sum and I had to try really hard to convince her not to. She doesn’t have much discipline with money that I know she would burn through a lump sum waaay to fast. I can see how a lump sum might work better in other situations though, just not hers.

  5. says

    I moved my 401K to an IRA after retiring – because the company was going to start charging me a management fee. The plan administrator also did some stuff I didn’t care for. Otherwise, I might have left it there. If I ever won the lottery I would probably take the payouts over time.

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