Question: I've become fully vested in my company's pension plan, and I intend to quit in the near future to pursue other career options. It seems the pension scheme allows me to decide what to do with the pension when I quit rather than forcing me to wait until retirement. I'll be 28 when I quit.

Based on what I've read, it seems the lump sum is the best choice considering my age. Most annuities (and I think my options are included) don't keep up with inflation in the long run. This is fine for older people anticipating a short run, but it would be a problem for me.

Am I right in thinking the lump sum is the best option for me?

Notes:

* I also have $80k in a 401(k). That's separate from the pension.
* With a lump sum I'd shore up my emergency stash and reinvest the rest.
* The lump sum is about $10k; the annuity would be about $500/mo at age 65.

Answer: 
Using Excel's IRR function and the following cashflows:

* 10,000 today (age 28)
* -6,000 annually from age 65 to age 85 (life expectancy)

Gives me an IRR of about 5.6% (which means that the 10,000 grows at 5.6% per year for 37 years and needs to continues to grow at that rate to last another 20 years). Which isn't terrible, but with a 40-year investment horizon you can afford to take more risk than that. Plus, since you have a good use for the money today (building an emergency fund) you are probably better off taking the lump sum, building your emergency fund, and putting the rest in a retirement account.

Plus, if you die earlier, you risk getting a lower return (assuming the pension is not inheritable) and your heirs getting nothing at all. An IRA, on the other hand, can be inherited.
You can eat your cake and have it too. The 401(k) money (or part of it) can be rolled over into an IRA and can be invested inside the IRA. Whatever you *don't* roll over and take as a lump sum is taxable income, and most likely subject to a penalty for premature distribution. I believe that 20% withholding is mandatory and so whatever is left can be used to shore up your emergency stash, and/or can be reinvested as you see fit.