Pension Options Should I take the lump sum payment or should I elect monthly payments?
 

• I am retiring, and I have the option to take a lump sum distribution, or I can take monthly payments. Which option is best for me?
  
  Each individual’s retirement income situation is different. Retirement options can vary with each employer, but many have 3 options. First is the lump sum distribution. Let’s assume for a minute that the retirement plan will give a lump sum distribution of $200,000 instead of monthly payments. (For tax reasons, you must put your distribution in a qualified plan, such as an IRA, or you may lose up to half of your money to taxes immediately.) The second option is a non survivor option. This means that the retiring worker will receive a monthly check for the rest of his/her life. However, upon death the spouse receives no monthly income. Let’s assume for a moment that this option is $1000 per month. The third option is a survivor option. This means that upon death of the retired worker, the spouse will receive a portion of the workers retirement check. This “portion” can vary depending on your election. Many people elect a 50% option. However, leaving a benefit to the spouse is not free. Many times there is a 15-20% cut in the retired workers pension to leave 50% to the spouse. In this example, $1000, minus 15% equals $850 per month to the retired worker. Upon death of the retired worker, the spouse receives half or $425 per month. Then upon death of the spouse, no more payments would be made.
  
  In the above scenario what would you do? Would you take $1000 per month and leave the spouse with nothing? Or would you take the $850 and leave the spouse with $425?
  
  What if each could have the $850, or better yet, the $1000? Then upon the death of the second person, the monies get transferred to your children or other beneficiaries? YOU CAN!!! Instead of electing monthly payments, take the lump sum distribution of $200,000. Put your money in an IRA vehicle that is guaranteed safe from market losses. (Such as a fixed indexed annuity) Since inception of the stock market, the average return has been over 12%. Let’s assume that you only average 6% over the years instead of 12%. At 6% on $200,000 your return would be $12,000 per year, or $1,000 per month. You haven’t even touched the principle. Upon your death, your spouse continues to receive $1,000 per month and upon his/her death the balance in the account is transferred to your children or other beneficiaries.
  
  
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