There are pros and cons when you need to decide the choices that are offered.
There are risks either way. As with anything involving risk, diversification is the prudent path to take. Thus, having some retirement money coming monthly in the form of a pension is okay. Another part comes from your savings and investments. The final part comes from Social Security.
In the end, all three parts (in bold above) depend on the economy is some form or fashion for funding. How the funds are managed is also a factor for success of each part. Some people do not have a pension option, which is okay since pensions come with risk too. Arguably, Social Security, once you are receiving benefits, is probably the least risky retirement income option.
Here are points about either option for your consideration …
Here are 6 reasons to accept the pension as monthly payments.
1. Pension protect against longevity risk (living too long). They do this by keeping the money of those who pass away early so as to give that money to those who insist on living longer.
2. Pension forecasts are too pessimistic (pension plans are underfunded … which means somebody someday may come up short) … and this leads to point 3.
3. There is a Plan B for private sector plans (non-government). Plan B is the PBGC which provides a backstop to closed pensions according to a formula (which means the bigger your pension, the more likely it may be reduced by the formula). Note: Government pensions require increased taxes or other revenue sources.
4. Lump sum formulas aren’t favorable. Which means you may get less from the lump sum than you might by taking the pension.
5. Women get an especially bad deal (with lump sum formulas).
6. Early retirement may not get the sweeteners in a lump sum that they might by accepting the pension.
1. Pensions can run out of money too.
2. What interest rate is the pension based on?
3. Most pensions do not include an inflation adjustment (and if they do, the monthly payment is less than if they don’t include inflation adjustments).
4. Pensions dis-inherit your heirs (spouses continue to get monthly benefits, but nobody else does).
5. Who keeps track of retiree’s when you’re no longer on payroll and move?
6. You can’t increase, or decrease, your spending it you need to (reduce taxes if you want, or need, to for example; another example use extra to replace that clunker).
7. Everyone invests in the same markets.
8. Flexibility to access money, or leave money in account, as needed (related to #6).