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Making the lump-sum payment might be beneficial to some workers and retirees in certain cases. For people with large amounts of debt (credit cards, mortgages, etc.) entering retirement, using the lump sum to pay these off and reduce their risk to interest rate fluctuations in the future. By paying off the debt as soon as possible they could eliminate future payments that would require working into retirement or using other income sources such as social security to pay for. This would be especially beneficial for retirees who have a large portfolio of assets as the payments would be a drag on returns in their portfolio.

"By paying off the debt as soon as possible they could eliminate future payments that would require working into retirement or using other income sources such as social security to pay for.." lake near trees across mountain

Also, those who get a lump-sum payment could maintain a tax protection by rolling it over to an IRA. If invested properly and not drawn down upon significantly early in retirement, a retiree could end up being able to improve their standard of living and while being better prepared for unexpected healthcare expenses.

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Generally speaking, the lump-sum option is beneficial when you do not have to rely on it as a significant source of income early in retirement, or it is used to reduce or eliminate significant liabilities that would require a large income stream to payoff many years into retirement. Taking a lump-sum requires more discipline and planning, but if utilized correctly, could provide more benefit over the course of retirement and allow you to leave something behind to beneficiaries.


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Tags: Financial Planning, Lump Sum, Pension, Retirement Planning