Trading In Your Pension
Deciding whether to take a pension in a lump sum or monthly payment can be a combination of self-analysis ("How much risk can I stand?") and prognostication ("When will I die?"). But there are clues in one's own behavior that can help make the choice easier.</br></br>The question received a burst of attention earlier this year, when more than 140,000 salaried retirees at General Motors and Ford Motor were told they could trade in their lifetime of monthly checks in exchange for a one-time payment.</br></br>In the past, companies offered lump sums to older workers to entice them to retire early, and because in some situations, the payouts don't have to include the full value of the pension.</br></br>Today, many companies are offering lump sums because they can calculate the payout using a higher interest rate than they have in the past, which reduces the size of the payouts.</br></br>Though lump-sum payouts transfer all the risk--investment, inflation, interest rate and longevity--to the retirees, many nonetheless find the prospect of receiving a large sum of money seductive, and are tempted to forfeit what is essentially a guaranteed monthly paycheck they and their spouse can't outlive.