Comparing the advantages and disadvantages of lump sum and annuity pension options involves a consideration of the pension holder's overall financial situation, life expectancy and ability to manage investments, states U.S. News & World Report. Another factor is the account holder's desire to continue annual income for a spouse.
Taking out the pension amount in a lump sum allows the account holder to roll it over directly into an IRA account tax-free, where it can continue to grow and provide an emergency fund for the future, according to Consumer Reports. A lump sum payout also gives the account holder access to the entire amount for current expenses, states About.com. However, lump sums can dissipate quickly, and IRA growth depends on the investment ability of the account holder.
A consideration of other sources of income, such as Social Security payments and other retirement accounts, is important in selecting the best option, reports U.S. News & World Report. The history of longevity in the account holder's family is also a factor in deciding if annuity payments offer greater long-term value.
There are three types of annuities from which account holders can choose, according to Consumer Reports. Single-life annuities offer larger payments during the lifetime of the account holder only. Joint-and-survivor annuities spread the payments over the lives of the account holder and spouse. This option ensures the spouse has regular income after the account holder dies. Period-certain-and-life annuities pay the spouse for a fixed number of years after the account holder's death.