Should I Take a Lump-Sum Payout or Monthly Payments?

While you have no control over the amount available to you in a defined benefit plan, you usually get to choose whether to take the cash all at once, in a lump sum, or as a monthly payout, also known as a “life annuity.”

As to which is better: it depends.

Most people choose a monthly payout, and with good reason: Having that steady income can make for less stress than taking a big lump sum, especially if you aren't an experienced investor.

That said, taking a lump sum has advantages. Chief among them: you gain control over the money. You can roll the funds into an IRA and invest it however you like; you can even opt to use a portion to fund an immediate annuity, effectively creating the same sort of income stream that you would have had by choosing monthly payouts from your pension. If you manage to invest your money wisely you may even have some to leave to your heirs. Finally, you lower the risk of losing money if your former employer hits dire financial straits. After all, even if your company is protected by the Pension Benefits Guarantee Corp, it may not cover 100% of the money you were told you’d get.

Of course, pulling all this off requires good planning and investing chops. So you have to decide if you're up to it, or if you are up to finding an adviser who can handle the job for you. (Yes, you'll have to pay for the professional advice.)