--- title: Should I Choose a Partial Lump Sum or Higher Monthly Pension Payments? description: Retirees with pensions may be offered a partial lump sum, but it would reduce your monthly payment. Here's how to make the right choice. authors: - name: Donna Rosato url: https://money.com/author/donna-rosato-3/ at_money_since: 2013 articles: 125 covers: - Retirement - Career Advice - Housing - Insurance - Investing - Lifestyle - Mortgages - Personal Finance - Taxes social: - https://x.com/RosatoDonna former_staff: true published: '2015-11-20T12:00:04.000Z' modified: '2024-04-02T05:17:58.000Z' section: Retirement tags: - Ask the Expert - lump sum pension - Pensions - Taxes word_count: 605 canonical: https://money.com/partial-lump-sum-monthly-pension-annuity/ type: Article source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![Ask the Expert Retirement illustration](https://img.money.com/2014/11/140605_askexpert_retirement_illo.jpg) **Q: I am 61 and retiring in the near future. I have a pension plan and my company offers a partial lump sum that would reduce my pension annuity by 25%. I have a substantial 401(k) that I have already rolled over and a deferred compensation plan that will pay out annual distributions in my first five years of retirement. Should I take the partial lump sum? – LP, Philadelphia** A: It might seem counter-intuitive, but take the lump sum, says Mag Black-Scott, CEO of Beverly Hills Wealth Management, Calif. Yes, you would be reducing your guaranteed income payments in retirement. But you're retiring relatively young, which means your retirement could last 30 years or more, and over that time that inflation will erode the purchasing power of your pension income. Granted, inflation has been low for much of the past decade. But even if prices rise a modest 3% a year, a monthly payment of $2,000 today would be worth less than $1,500 in 10 years and about $1,000 in two decades. Today's low inflation and low interest rate environment hurts in another way too: Pension payments are calculated on current interest rates, and you’re locking in a low rate of return with an annuity today. “You could do better investing the money yourself,” says Black-Scott. Of course, there are [exceptions to this advice](https://money.com/pension-lump-sum/). “If you’re the kind of person who will spend the money or not invest it, keep the annuity,” says Black-Scott. “You have to know yourself and how disciplined you are.” Don't let your decision by influenced by your employer, who may push you to take a lump sum payment. Pensions are costly to keep on the books. About half of companies that provide pensions offer a lump sum payout option and [nearly 60% of workers](http://www.aon.com/attachments/human-capital-consulting/lump-sum-window-experience.pdf) opt for the lump sum. That may [not be a good idea](https://money.com/collection-post/lump-sum-pension-payout-or-monthly-payments/) if you want to take care of a spouse after you die and leave a larger survivor pension benefit behind. Advisers and brokers may also encourage retirees to take a lump sum, since that move gives them more money to manage, along with more fee income. Some have been known to recommend [risky or inappropriate](https://money.com/retirement-savings-bad-advice/) investments that pay them higher fees. All that said, taking the lump sum probably makes financial sense in your situation, since you have other sources of steady income. Besides the remainder of your pension, you’ll have payouts for the next five years from your deferred compensation plan, as well as Social Security income when you reach full retirement age. Black-Scott recommends rolling the lump sum payment [directly](http://benefitslink.com/articles/taxbite.html) into your existing IRA. As a rule of thumb, a safe allocation for those entering retirement is a 50-50 stock-and-bond mix, but Black-Scott says you can invest more heavily in stocks, since you have income to help you ride out down markets. Investing the money may also give you tax benefits. Your pension income is taxable, so by reducing the payout with the lump sum, you'll owe less to Uncle Sam. If you keep the lump sum stashed in an IRA, you don’t have to pay taxes until you reach age 70 ½, when you are required to start taking [monthly distributions](https://money.com/ira-withdrawals-rmd/) from your IRA. Another benefit of a lump sum payout is liquidity, says Black-Scott. Having the money in an IRA, instead of locked up in an annuity, gives you access in an emergency. “You’ll have to pay taxes if you make a withdrawal, but the money will be there if you need it,” she says. ***Read next:*** Millions of Retirees Risk Missing IRA Distribution Deadlines and Paying Huge Penalties ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/partial-lump-sum-monthly-pension-annuity/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Retirement", "item": "https://money.com/retirement/" }, { "@type": "ListItem", "position": 3, "name": "Pension", "item": "https://money.com/pension/" }, { "@type": "ListItem", "position": 4, "name": "Should I Choose a Partial Lump Sum or Higher Monthly Pension Payments?" } ] }, { "@type": "WebSite", "@id": "https://money.com/#website", "url": "https://money.com", "name": "Money", "publisher": { "@id": "https://money.com/#organization" } }, { "@type": "WebPage", "@id": "https://money.com/partial-lump-sum-monthly-pension-annuity/#webpage", "url": "https://money.com/partial-lump-sum-monthly-pension-annuity/", "name": "Should I Choose a Partial Lump Sum or Higher Monthly Pension Payments?", "isPartOf": { "@id": "https://money.com/#website" }, "datePublished": "2015-11-20T12:00:04.000Z", "mainEntity": { "@id": "https://money.com/partial-lump-sum-monthly-pension-annuity/" }, "inLanguage": "en-US", "breadcrumb": { "@id": "https://money.com/partial-lump-sum-monthly-pension-annuity/#breadcrumb" }, "dateModified": "2024-04-02T05:17:58.000Z" }, { "@type": "Article", "headline": "Should I Choose a Partial Lump Sum or Higher Monthly Pension Payments?", "articleSection": "Retirement", "image": [ { "@type": "ImageObject", "url": "https://img.money.com/2014/11/140605_askexpert_retirement_illo.jpg", "width": 2100, "height": 2100, "caption": "140605_AskExpert_Retirement_illo" } ], "author": [ { "@type": "Person", "name": "Donna Rosato", "url": "https://money.com/author/donna-rosato-3/", "@id": "https://money.com/author/donna-rosato-3/#author", "image": "https://img.money.com/2014/05/140530_bio_author_rosato.jpg?quality=85&w=190&h=190&crop=1", "email": "donna_rosato@moneymail.com", "sameAs": [ "https://x.com/RosatoDonna" ] } ], "publisher": "https://money.com/#organization", "datePublished": "2015-11-20T12:00:04.000Z", "description": "Retirees with pensions may be offered a partial lump sum, but it would reduce your monthly payment. 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