How to Think about a lump sum election

You’ve been told you have the option of converting all or part of your pension plan to an immediate cash payment (a “lump sum”). What should you do?
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Just as important, how do you even think about this in a sensible way?

For your free copy just click on the pamphlet cover above.

First, let’s distinguish three circumstances under which you might have the option of taking a lump sum from your pension plan:

1. You are retiring from an employer that offers a traditional pension plan (a plan that pays a monthly retirement benefit for life), and that plan allows you to take all or part of the value of your pension as a lump sum when you retire, with reduced or zero future payments.
2. Your employer is restructuring a traditional pension plan, and you’re being offered a one- time opportunity to keep your pension as is, take a lump sum payment in exchange for giving up all future pension benefits from the plan, or take half the lump sum amount and keep half of your pension.
3. You have a 401(k), 403(b), or other similar plan where you already have a specific account balance, and because of a job termination, retirement, or other event you have a right to withdraw some or all of your account from the plan.

​Although each of these situations is different, most of the thought process you should go through is the same.

Even so, there is more than one way to think about this decision.

1. Taking a lump sum means you have an immediate financial windfall. What’s more exciting than that? And who doesn’t have a mental list of great things that could be done with a windfall?
2. Then again, if you take a lump sum, you may be cheating your own future, or that of people who depend on you. Maybe that money is going to mean a whole lot more to you later than it does now, not least of all because if left alone, it is likely to grow.

​Of course, if the lump sum amount is small, none of this matters a great deal. But if it represents more than a few paychecks to you, then it’s worth putting some serious thought into.

And that’s what our guide "Should You Accept A Lump Sum From Your Pension Plan?" is for.

For a free copy click here.

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