Lump sum pension payment Good or Bad?
Right road?
uly 11, 2008 (Vol. 6, No. 28)
Should you take a lump sum
payment from your pension plan?
A trap for the unwary!
By Steve Vernon
http://blog.ira-401k-realestate.com
Editor’s note: This story is reprinted courtesy of Rest of Life
Communication.
Suppose you’re in your 50s or 60s and have worked 10 years or
more for an employer with a defined
benefit pension plan. Such a plan promises
you a lifetime monthly retirement income
(aka an annuity), with the option to
continue the lifetime income to a surviving
spouse or beneficiary after you die.
Congratulations – you’ve earned some
serious retirement bread. Now suppose
you’re offered a lump sum payment in lieu
of the annuity, either as a regular
retirement or a special buyout. Should you
take the money and run?
If you’re like many people who get this offer, you don’t think too
hard about this. The obvious answer: Take the boatload full of money!
After all, that’s what your work buddies have done, and that’s what
many investment advisers recommend.
I worked for over 30 years as a consulting actuary, helping large
corporations design and manage their retirement programs.
Whenever I saw a lump sum buyout offer, acceptance rates varied from
50% to well over 90%. This made me shake my head in frustration, as
often I felt it was the wrong decision.
Now don’t get me wrong. In some instances a lump sum is the right
decision. But too often people choose it for the wrong reasons. This
article addresses common myths and explains the pros and cons, to
help you decide what is one of the most important financial decisions
you will ever make. You’ll live with this decision for 20, 30 or 40 years,
so it’s well worth the minutes spent reading this article and thinking
about the issues.
Your Big Challenge
When you retire, you want to generate a retirement income that
will last the rest of your life, no matter how long you live and no matter
what happens in the economy. If you’re married, this income needs to
boomers bank
