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Paul McNulty, CFP ® | Boston Metro Advisor

Paul McNulty, CFP ® | Boston Metro Advisor

Financial Advisor in Boston, MA

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Lump Sums Versus Lifetime Payments

You are here: Home / Retirement / Lump Sums Versus Lifetime Payments

January 13, 2017 By Paul McNulty

iStock 522649042 1Retirement planning involves a series of important decisions. For those of you whose company offers a pension plan, you face a choice that can greatly impact your retirement income and lifestyle: Should you take advantage of the lump-sum payment offered by your employer, or accept lifetime payments instead?

As with most decisions regarding retirement, the dilemma lump sum versus lifetime payments has no easy answer. What worked well for your neighbor might not be right for you, so try not to focus too much on individual success (or disaster) stories. Instead, work closely with a financial planner to weigh all of your options and then make the decision that seems right for you.

As you weigh those options, you will notice several pros and cons of each scenario. The pros of taking payments include:

  • You will know, for sure, how much income you can count upon each month
  • You’re protected from the ups and downs of the stock market
  • You won’t have to worry about outliving the money, no matter how long you live

Of course, there are several potential drawbacks of taking payments, such as:

  • If you pass away soon after retirement, your pension payments cease. You will have reaped much less from the pension plan than you would have, if you had taken the lump sum payment.
  • While a dependable monthly income is often ideal, you won’t have the option to access extra cash in the event of an emergency.

On the other hand, there are several pros and cons to taking a lump-sum payment from your pension plan. Many people take this route because of benefits such as:

  • Greater control over your income; you decide how much to spend, and when
  • You can invest the money, and potentially earn larger returns on it

However, each of these benefits also comes along with a pretty clear downside:

  • You could spend too much in the early years of retirement, potentially running out of funds toward the end of your life.
  • Any investments you make could turn out differently than you had envisioned, and your monthly income could end up lower than it would have been if you had taken the payment option.

As you can see, many factors are included in this decision, and you probably have some personal considerations of your own to add to the dilemma. Since this is one of the most important financial decisions you will ever make, don’t try to weigh all of the pros and cons alone. Give us a call, and we can help you with this decision, or any other questions you might have about retirement.

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Filed Under: Retirement

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Paul McNulty, CFP®
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Woburn, MA 01801

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