What are the differences between lump-sum and annuity retirement options?

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Question: I am about to retire, and my company offers a pension. Do I take the Lump-sum option or the annuity option?

Answer: It depends on your individual situation, lifestyle, health, other resources, leaving a legacy to family, etc. There are pros and cons to both choices, and you may need to do some "number crunching" in order to see which option is best.

Pros	Cons
One large check	Assume investment risk and costs associated with investing, but a premature death insures you have your money up front for family/heirs.
Leave a legacy/charitable intents
Control of cash flow and distributions	If you live longer, you must make your $$ last longer.

Annuity Option

Pros	Cons
Monthly checks for life, peace of mind	Do not keep up w/inflation, premature death stops the checks.
Many payout options (single, joint, etc.)	Confusing to decide which is best payout option. Each has its pros and cons.
No investment risk to retiree	If company goes “bankrupt”, Pension Benefit Guarantee Corporation (PBGC) provides limited protection (check with your employer to see if they are covered).

A Lump-Sum Option gives you the flexibility to decide the timing and amount of payouts. You will, however, have to assume investment and market risks to ensure that you do not outlive your money. If you do not need the money, you may set up trusts for your heirs, or to gift the money to charities, church and/or schools.

An Annuity Option gives you the peace of mind in knowing that your payments are steady and come every month.

You may not receive any inflation adjustments, and, depending on the payout chosen, your spouse or heirs may not receive any benefits after death.

If the plan is terminated, the Pension Benefit Guarantee Corporation (PBGC) may come in as trustee and continue payments

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