Tips To Take Retirement Money As Lump Sum Or Annuity

Thursday, May 28, 2015, AM | Leave Comment

This is probably an age-old question but keeps resurfacing in these hard times, whether to take your retirement money in lump sum or in the form of annuity in which case you get monthly payments.

Experts agree on one thing and that is they would tell you it depends on your specific situation.

In other words, either you take the situation in your own hands and act according to how you see fit, or talk to your financial adviser.

Retirement Money As Lump Sum Or Annuity

However, the decision is usually made at the time when your pension manager at work wants to give you the money. They would ask you the same question – a little at a time through an annuity or lump sum. At the time, this could be the most important but the hardest financial decision to make for the rest of your life.

  • What is annuity in relation to lump sum?

    The annuity is generally an insurance-industry product. Folks in this industry would like you very much if you took their way to heart and choose annuity over lump sum.

    However, folks whose business is purely investment management will not sit on their asses idly. They would try to talk you into taking lump sum and give it to them for investment, wholly and squarely.

    No matter how much money you have accumulated as pension, no one is gonna leave you alone. That’s your hard-earned money. You should not give it to anyone without thinking and talking it over to someone honest and responsible.

    I am sure you can find someone with these two characteristics though it seems kind of hard these days, considering the fact that every type of scam is on the rise.

  • So what do you do?

    There are few all-or-nothing decisions in personal finance. This ain’t one of them. It’s entirely up to you. If you are willing to sacrifice some potential income for the assurance that you will receive steady payments, you will be best served by taking some of the money as a lump sum and some as an annuity.

  • You gotta have a well thought-out strategy

    If you retire at or before the normal retirement age [these days it’s hard to define retirement age], you generally should take the lump sump. Then, when you age some more, there is nothing to prevent you from investing in an annuity.

    Today’s annuity programs have advanced a lot. There is what in the industry is known as “immediate payment variable annuities.” What it does is invest your money in mutual funds, and you begin receiving investment payments immediately. The important thing is you don’t have to take the annuity your employer or broker offers.

  • Caution: an example

    It is very much common in America. We cannot escape the inevitable though we would prefer otherwise. If you or your spouse goes into a nursing home, your lump sum distribution will be used to help pay nursing home costs.

    However, you wish you had chosen an annuity for part of your savings because nursing-home care has wiped out your long-term savings.

In a Nutshell
The best step to take when the time comes to retire is take the lump sum option and take annuity later for some of the money. It will at least assure a continuing income for you or your spouse, especially after you leave the nursing home.

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