Mark D. Goldstein, CFP®
SAFE-Money Alliance

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The question comes up a lot: Is it better to take a pension or a lump-sum payout?

Whenever the choice is available (which it sometimes isn’t), I generally advise my clients to take the lump-sum instead of the pension. When you take the pension, you expose yourself to a number of risks…

1. Unless you worked for the government, your monthly check doesn’t usually rise with inflation, and you won’t keep up with the cost of living.

Most economists expect inflation to heat up in the near future and, assuming that’s true, the “rule of 72” tells us that at just 4% inflation, the cost of living will double in 18 years. At 6%, your purchasing power is cut in half in only 12 years.

2. If you need access to a large amount of cash (say for medical expenses or to help with the grandkids’ college costs), you can’t access the pension. You’re limited to the monthly check.

3. If you die, the income stops… placing your spouse at financial risk. In order to protect your spouse, you must agree to receive a smaller monthly pension check.

4. There’s no inheritance for your children. The pension is for you (and possibly your spouse) only.

5. If the company goes out of business, your pension income might be interrupted, severely reduced or completely stopped.

Remember: This is a once-in-a-lifetime decision. You don’t get to change your mind in the future and you can’t predict what might happen to that company. For the next 20 to 30+ years in retirement, you’ll be completely dependent on them to honor their promises.

Fortunately, all of these risks can be avoided by taking a single, one-time payment (known as a lump-sum), in lieu of monthly pension checks.

With the right advisor (hint, hint), in most cases you’ll be able to generate an inflation-adjusted guaranteed income amount greater than what the pension would have provided. Plus, you'll be able to increase or decrease the income as you wish, and you can access the entire balance at any time.

Best of all: Any money you don’t spend STAYS IN THE FAMILY... remaining available to your spouse, children and grandchildren as an inheritance.