David Lerner Associates: Should You Take A Lump Sum Pension Offer?

David Lerner Associates: Should You Take A Lump Sum Pension Offer?

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Recently, some large U.S. companies have offered to buy out the pension benefits of their workers and retirees by giving them one-time, lump-sum payments instead. This is part of the broader shift in recent years by many companies away from defined benefit pension plans and toward defined contribution plans, like 401(k)s.

Is accepting a lump-sum payment in lieu of a guaranteed income stream for life a wise move? “The short answer is—it depends,” says David Lerner Associates Branch Manager Anthony F. Meere.

Taking the lump sum may entail more risk, Meere points out, since it involves giving up a guaranteed lifetime income stream via the pension and investing the money yourself. “Of course, you could put the money in a low-yield, FDIC-insured savings account, but this isn’t risk-free, because the money may not earn enough to keep pace with inflation.”

In order to make the right decision for you and your family, the Pension Rights Center suggests that retirees carefully consider the following questions:

• How healthy are you?If you are in poor health and your life expectancy is not long, you might receive more money via the lump sum than you eventually would in monthly pension payments. Your spouse and/or children could then inherit the money that’s left after you die.

Conversely, if you are in good health, you may outlive the average life expectancy, so keeping the pension might be a safer option. With the pension, you will receive a guaranteed income stream for the rest of your life—regardless of how long you live.

• Do you have sources of retirement income other than the pension?If you have additional assets, or if your spouse also has a pension, it might make sense to assume the additional risk involved in taking the lump sum.

• How are your investing skills?If you are a relatively experienced and skilled investor and are comfortable taking responsibility for investing the money yourself, taking the lump sum could be the right option for you. But remember: You alone will be responsible for the investment outcomes—whether they are good, bad or somewhere in between.

The Pension Rights Center stresses that the one thing retirees should not do is take a lump sum and use it for non-retirement purposes—especially if there are no other sources of retirement income. Meere agrees:

“The fact is, not everyone is emotionally prepared to receive a large sum of money all at one time. If you think you might be tempted to spend the lump sum unwisely, instead of saving and investing it for retirement living expenses, keeping your pension might be the best option for you.”

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC.


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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates 1 877 367 5960 http://www.davidlerner.com

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Jake Mendlinger
Account Manager
516.829.8374 X 232

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