It is possible to choose a lump sum payment rather than a regular pension payment when the offer becomes available from an employer, states Investopedia. Each comes with advantages and disadvantages, making it important for employees to think about their decisions and whether they have the self-control to use the funds from a lump sum payment wisely.Continue Reading
One advantage of choosing a lump sum includes being able to account for inflation on the future costs of prescriptions and medical care, according to Investopedia. This may not be a problem with regular pension payments if the plan includes cost-of-living increases. Those who choose to take a lump sum have the option of handling their investment portfolios and adjusting their assets as needed to improve their future incomes.
A disadvantage of lump sums includes the surviving spouse possibly not being able to live on that amount if the other spouse dies, notes Investopedia. The surviving spouse also may not be as adept at handling lump sum funds as the deceased spouse. A company may also no longer offer retired employees sponsored health coverage if they take lump sum payments. Employees should check to see if early-retirement subsidies were removed when determining their lump sum offers or if a better return is available than what they would get with a pension fund manager.Learn more about Financial Planning