Why You Shouldn’t Cash Out Your Pension


You are a hard worker. Every day you went into the office with the goal to give your best effort, and it paid off. Retirement is upon you, sitting on your shoulder as you write your final email to your colleagues. Welcome to the next phase in your life.

One of the last responsibilities you will have at your job is deciding how to structure the payout from your pension plan. You will be given many options for this retirement income: lump sum, single life annuity, joint options, and period options. On first glance, the lump sum glistens with promise. But many have found that ineffectual, with the losses outweighing the gains.

I’d like to show you some different options you have for your pension plan payout to help you make the most fiscally sound decision that you can.

Lump Sum

Cashing out your pension might seem like an over-the-top payday, like the lottery ticket you bought finally paid off. But, I’d like to urge you to tread with caution.

If you receive your pension payout in one lump sum there are many risks attached to that money. With such an influx in your account, you may be more susceptible to recreational or temporal spending. The problem of overspending befalls many who elect to cash out their pension.

This option also proves difficult in terms of investing. You become responsible for investing, maintaining, and managing a large amount of money, which is not an easy feat. Many people end up losing more money than they make when they attempt to invest their retirement funds on their own.

Single Life Annuity

One of the best pension payout options for single people is the single life annuity. Under this plan, the account owner will receive high monthly payments for the rest of their life. This annuity plan grants the recipient the highest monthly wage of any other annuity plan and with a set guaranteed income from the pension source, budgeting becomes a much simpler task. If you do not have any dependents, this is a wonderful option.

Having a spouse or other dependents may make this option a bit more tricky. If you do elect this pension payout and your spouse outlives you, they will not have any access to the funds you had been receiving. The monthly payments stop when the recipient has passed away. If you and your spouse have other more sustainable forms of income in retirement, you may be able to make the single life annuity plan work.

Period Certain Options

In a similar vein, period certain options offer the recipient a fixed amount of money per month. Granted this monthly payment is lower than the single life annuity payment would be, but it offers limited coverage for a spouse or dependant.

Period certain options primarily can be allotted for 10-20 years. For example, if you have a 20-year plan and you pass away 11 years into the plan, your spouse or dependant would continue to receive the monthly payment for the remaining 9 years of the plan’s life. Once the plan expires, the payments stop.

Joint and Survivor Options

Married couples often elect to take the joint and survivor payout options. These plans often come with a range of options: 50% to 100% payouts. Each option offers a different monthly payment while both people are living and provides a different amount if one spouse passes away. Let’s take a look at what both options have to offer.

If you choose the 50% payout plan then you will receive a slightly higher monthly payout during retirement and after you pass your spouse will be eligible to receive 50% of that monthly amount for the rest of their life. The 100% payout plan offers a smaller monthly check, but ensures that the surviving spouse receives that full monthly payment for the rest of their life.  

Both of these options are put in place to protect your loved ones after you pass away. Think carefully about which option would be most beneficial to both you and your spouse.

At The End of The Day

When all is said and done there are so many wonderful options for receiving pension payouts throughout retirement. The annuity plans are designed to provide you with a fixed monthly income to support your life in retirement. This accountability makes your planning and budgeting infinitely more manageable.

Be sure to weigh all of your options and choose the one that will offer you and your family the most benefits. You have worked so hard your whole life, now is the time to reap the rewards.


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