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How You Should Take Your Pension

How You Should Take Your Pension

We have to admit we were kind of floored to see an article about pensions—but then again, as the boomer generation is heading into retirement, this may be the last chance we get to read or write about it!

As it stands, about 90% of the Americans still getting pension benefits elect to take the money in a lump sum and manage it themselves. If you’re not planning to live a long life, this may be an option—but we do hope you'll be around awhile! However, if your pension is roughly $300,000 and you want to live off of $2,000 or so a month, then you’re probably going to run out of that money fairly quickly.

Assuming that you live to the average age of 85 for men or 88 for women, the best hope you have for making the pension last is to take the guaranteed monthly benefit payments. However, if you’re going to take the lump sum, then the portfolio you put it in will need to earn about 7% in order to make it last through your lifetime, again assuming the 85/88 scenario. If you live longer than that, well you run the risk of running out of pension money.

Bottom line: It’s better to leave your pension money where it is and draw monthly payments for the rest of your life. However, if you feel you can manage the money so that it earns at least 7%, then you have a decent shot at making it last.

Would you take the monthly benefit or the lump sum? Are you lucky enough to even have a pension to get you through retirement? [CNN]

Posted: 7/1/08
TedFlg03

I agree with you 100%! Most folks I've talked to want to take the lump sum. When asked why the majority answer that their "financial advisor" told them he could invest it for higher returns and make them more money - of course no guarentees. The truth is the "advisors" don't make a dime if you take monthly benefits so there is no way they would suggest that.