???? Pension vs. Lump Sum: Making the Retirement Decision ????

For those nearing retirement with a pension in hand, congratulations on reaching this milestone after years of hard work and planning! Now comes one of life's biggest decisions: pension or lump sum payout?

In the "olden" days, a 30-year career often culminated in a secure monthly pension. However, times have changed. Many companies now offer employees the choice of a lump sum instead of lifelong payments, as they seek to exit the pension business to manage costs and risks more effectively.

Why the shift? ??

• Cost Efficiency: Lump sums can incentivize early retirement, reducing payroll costs.
• Administrative Simplicity: Managing pensions is complex and costly.
• Investment Challenges: Low interest rates require riskier investments to fund future payouts.

While pensions promise security, they also pose risks:

• Longevity Risk: People are living longer, stretching pension fund obligations.
• Investment Risk: Market fluctuations can impact pension fund returns.
• Actuarial Risk: Assumptions about life expectancy and economic conditions may prove inaccurate.

Benefits of a lump sum include:

• Control: You manage your money's investment and withdrawal decisions.
• Access: Immediate access to the full amount for emergencies or investments.
• Legacy Planning: Ability to leave remaining funds to heirs or charities.

Calculating the right choice involves considering:

• Health and Life Expectancy: Longevity may favor pensions; health concerns might lean towards lump sums.
• Spousal Considerations: Joint pension options vs. lump sum flexibility.
• Financial Management: Can you manage investments or prefer a guaranteed pension income?

Run the numbers! ?? Calculate your Pension Income Ratio (PIR) to compare pension payments with lump sum withdrawals. Consider the 4% rule for safe withdrawal rates from investments as a benchmark.

Consult a financial professional ?? Ensure an objective evaluation with a fiduciary advisor who prioritizes your financial well-being over sales. Comprehensive planning should cover wealth, tax, estate, and insurance considerations aligned with your values and goals.

Deciding between a pension and lump sum is pivotal. Make an informed choice to enjoy your retirement with peace of mind and financial security.

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?? About the Author: Michelle Glass, CRPC works with people who are within two years of retirement to turn their hard-earned savings into an income. Michelle has been a financial adviser since 2007 and loves this work because she loves putting together financial puzzles and helping people retire. In her spare time, Michelle enjoys being with her family.

About Glass Financial Advisors: Michelle has a firm called Glass Financial Advisors and because she really understands the unique challenges facing pre-retirees facing the lump sum or pension option, she is incredibly selective about with whom she will work. You can reach Michelle and Glass Financial Advisors at [email protected].