What is a lump sum pension payout?


Quick Answer

Some companies and government institutions offer new retirees lump-sum pension payouts, which are large one-time payments in place of lifetime monthly payments, states Investopedia. The choice between lump-sum and regular pensions is complicated and depends on a retirees' investment skills, expected inflation and company stability.

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Full Answer

Experts recommend retirees take a lump-sum payout if they are confident in their investment abilities and have doubts about the reliability of their pension plan, explains Investopedia. Many pensions do not increase monthly payments with inflation, and those that do may not keep payments in line with the cost of health care and housing. A retiree who invests wisely may be able to increase his monthly income more than that available in a monthly payment plan. Lump-sum payouts also allow pensioners to leave any leftover money to their heirs, states CNN Money.

However, if the offered pension plan is covered by pension guarantees, and if a retiree is worried about the ability of a lump sum payment to cover their dependents expenses after they die, lifetime monthly payments may be preferable, states Investopedia. Additionally, this option is often less stressful than a lump-sum payout, especially if the retiree is not an experienced investor, says CNN Money. Most people continue to take the monthly payment option.

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