Financial Retirement Planning

Lifetime Pension Payments or lump Sum?

Lifetime Pension Payments or lump SumShould we take a buyout which amounts to a lump sum payment or should we take a lifetime pension with benefits? There are pros and cons to both scenarios. Some people will be more comfortable with the knowledge that they will receive a fixed amount for as long as they live. While others feel better about managing their own money and having that lump sum to leave to their children as an inheritance. We will list some of the pros and cons for each. There is no right or wrong answer to this question. It really depends on the person, their situation in life and their risk tolerance.

Lifetime Pension Payments

  • Fixed pension for as long as you live
  • May include indexing for inflation
  • No perceived risk, many are guaranteed
  • You don’t need to worry about the impact of the markets
  • Cannot draw down in an emergency
  • If you die early the money is gone, payments stop
  • There is no inheritance for your children

Lump Sum Payment

  • Lump sum is paid into a registered plan
  • You have control over the investments
  • You also have control over how much is withdrawn
  • In an emergency more money can be withdrawn
  • Must take responsibility for managing into retirement
  • Must plan for lifetime withdrawals
  • Risk of running out of cash before you die
  • If you die early, all money left overs goes to your heirs
  • May lose sleep at night, do you have enough to last

As you can see there are some big advantages and disadvantages to both. Work with an advisor to assess what your payments would be in both scenarios and make the right decision for your situation and risk tolerance.


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