What are the differences between lump-sum and annuity retirement options? - MSNewsNow.com - Jackson, MS

What are the differences between lump-sum and annuity retirement options?

Question: I am about to retire, and my company offers a pension.  Do I take the Lump-sum option or the Annuity option?

It depends on your individual situation, lifestyle, health, other resources, leaving a legacy to family, etc. There are pros and cons to both choices, and you may need to do some “number crunching” in order to see which option is best.

Lump-Sum Option



One large check

Assume investment risk and costs associated with investing, but a premature death insures you have your money upfront for family/heirs.

Leave a legacy/Charitable Intents

Control of cash flow and distributions

If you live longer, you must make your $$ last longer

Annuity Option



Monthly checks for life, peace of mind

Do not keep up w/inflation, premature death stops the checks

Many payout options (single, joint, etc.)

Confusing to decide which is best payout option.  Each has its pro and con

No investment risk to retiree

If company goes “bankrupt” Pension Benefit Guarantee Corporation (PBGC) provides limited protection (check with your employer to see if they are covered)

A Lump-Sum Option gives you the flexibility to decide the timing and amount of payouts. You will however, have to assume investment and market risks, to ensure that you do not outlive your money.  If you do not need the money, you may set up trusts, for your heirs, or to gift the money to charities, church and or schools.

An Annuity Option, gives you the peace of mind in knowing that your payments are steady and come every month.  You may not receive any inflation adjustments, and depending on the payout chosen, your spouse or heirs may not receive any benefits after death.  If the plan is terminated, the Pension Benefit Guarantee Corporation (PBGC) may come in as trustee and continue payments. 

DISCLOSURES This does not constitute an offer to sell securities and reference should be made to the applicable offering materials for minimums, restrictions and risk factors. Information relied on is obtained from what we consider reliable sources, but no guarantee is made with respect to accuracy. Please note that past performance is not a guarantee of future results. As you are aware individualized financial planning involves complex legal and tax issues.  No one connected with Stanford Group Company can ensure tax consequences of any transaction.  Accordingly, you may wish to review these issues with your tax or legal advisor.  These suggestions are intended for your use for arriving at a reasonable, fully explained financial decision and not as a compilation of the only possible investment vehicles and modes. All projections are intended for modeling purposes only and are not intended to predict nor guarantee the actual results of any assets, liabilities or investment products.


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