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The Pension Option: The Lump Sum or Income Stream

If you are fortunate enough to have a pension, you will likely be forced to choose one of two payout options: a lump-sum distribution or a guaranteed lifetime income stream. Making the right decision in this scenario could ultimately determine whether you are able to reach your financial goals. Prior to making this important decision, you should consult with your Stifel Financial Advisor to consider a variety of factors.

Personal Attributes

Financially savvy individuals have a keen awareness of their strengths and weaknesses. By embracing their personal attributes, these individuals are more consistently able to move toward their financial goals. Two personal attributes that may impact your pension decision are self-control and longevity.

If you elect to receive a lump-sum pension payout, you will have access to a large sum of cash. Suddenly, you may be able to afford the sailboat of your dreams. However, doing so may jeopardize your ability to reach your long-term financial goals. Will you have the self-control to forgo the sailboat while continuing to diligently follow the financial path that you have charted with your Stifel Financial Advisor? If not, a lifetime income stream may better protect your pension assets from impulse purchases that will have an adverse impact on your financial future.

While self-control is inherently determined by your ability to remain disciplined and focused, longevity is determined by factors outside of your control. When working to develop a financial game plan, you must consider the risk of outliving your assets. If you are healthy and have a family history of longevity, you can hedge against this risk by electing a guaranteed lifetime income stream. However, this option also has potential downside, as the income stream typically ends when you or your spouse dies. This may hinder your ability to leave a financial legacy that your heirs can enjoy. If you are in poor health or have a poor family health history, you may instead choose to receive a lump-sum pension payout. This will ensure that you receive your entire benefit while enhancing your ability to leave a financial legacy.

Market Risk


As we have experienced over the years, the market can be volatile. This volatility could impact your financial future. A pension can be a powerful tool to help mitigate the risk posed by market swings. If you have a high risk tolerance, you may benefit from a lump-sum pension payout. This would give you and your Stifel Financial Advisor the opportunity to actively manage market risk. During certain market conditions, responsibly investing your lump-sum payout may allow you to capture market upside and maximize your pension benefit. During other market conditions, however, you may experience losses that erode your pension benefit and threaten your retirement spending goals. A lump-sum pension payout places the burden of managing market risk squarely on you and your Stifel Financial Advisor.

If you have a low risk tolerance, you can transfer this burden to your employer and their pension fund manager by electing a guaranteed lifetime income stream. With this election, you are guaranteed to receive your scheduled payment for the rest of your life regardless of market conditions, subject to the financial strength and stability of the pension provider.

If you are considering your pension payout options now or in the future, please reach out to your Stifel Financial Advisor. Your Stifel advisor can provide a financial plan comparing the different options available to you. This allows you and your advisor to view your entire retirement picture and determine how your pension options impact your overarching retirement plan. Ultimately, this can help you make an informed and educated decision regarding your pension benefit.