Az9er
Regular Visitor
My wife is getting ready to retire next year. She has the option of getting her pension monthly or taking a lump sum (approx 250k). Are there advantages/disadvantages to taking the lump sum

Most Helpful

Answers (1)

Answers (1)

Az9er –

 

Thank you for your question; it is one that a lot of retirees ask and plan around. There are pro’s and con’s on both choices, let’s break some of them down:

 

Pro Lump Sum, Con Pension

  • The lump sum proceeds can typically be rolled over into a retirement account like an IRA in which you can control the investments, take distributions as you need them or defer distributions until a later time which will defer the taxation on those proceeds as well.
  • Assuming the pension makes immediate payments, it will increase your income taxes by the amount of income received.

Con Lump Sum, Pro Pension

  • One of the biggest risks that retirees face is outliving their money. Taking a lump sum places the control entirely on your shoulders. Your investment and spending decisions are the only means of offsetting longevity risk whereas a traditional pension payment typically is tied to the pension beneficiary’s lifetime.
  • Having a source of lifetime income can reduce your dependence on investment returns and your sensitivity to investment market changes. Investing the lump sum may require more time, energy and analysis, all of which you may not to do depending on your retirement goals and lifestyle.

Ensuring a successful retirement starts with understanding your cash flow needs. We believe that your expenses that are fixed and recurring should be covered by a guaranteed source of income like your pension, social security or annuity payments. Your discretionary costs should be covered by your investments and other income sources and you should have safeguards in place like adequate insurance and emergency savings to keep your cash flow as predictable as possible.

 

As mentioned above, there are benefits and trade-offs that you need to consider how they impact your personal situation. There are some great resources that can help guide you through some of the decisions that retirees face on www.usaa.com/retirement and we have a team of advisers that are here to help at 800-531-USAA.

 

I hope that this information has been helpful for you. Please let me know if you have any follow-up questions that I can help navigate as well. Thank you for your membership.

 

Sean Scaturro, MBA, CFP®

Advice Director