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Dave Ramsey's Smartvestor

Fortunate to have a pension? Here’s the most important decision you must make

February 12th, 2019 | 2 min. read

By Jacob Schroeder


PensionChoicesSince the early 1980s, pensions plans have gone the way of payphones. Today, 4% of private sector workers say their only retirement account is a pension plan, down from 60% nearly 40 years ago. Only about 14% of companies offer both a defined contribution plan (ex., 401(k)) and defined benefit pensions plan.

If you’re one of the few who still receives a pension, consider yourself fortunate. Your pension will be one of your major sources of income in retirement. However, you can’t just sit back and assume a pension will cover all your financial responsibilities. You have a very important decision to make: should you take a monthly or lump-sum pension payout?

The right choice for you depends on your personal circumstances. There is not a single, right answer for everyone, so it is a decision you want to consider carefully. Ultimately, choosing the right pension benefit should be done with the help of a qualified financial adviser.

But, to help you gain a better understanding of your pension options, here are the pros and cons of monthly and lump-sum pensions.

Monthly Pension


Income for life – You can expect a pension paycheck every month. So, you can worry less about outliving your money.

No market risk – Since you won’t be investing your pension payout, you don’t risk a loss of principal in the market.

Less responsibility – You don’t have to rely on your own investment expertise in hopes of generating a rate of return and appropriate withdrawal rate to create a reliable income throughout retirement.


No inflation protection – Your pension may not be indexed to inflation, meaning you won’t receive a cost-of-living adjustment and may experience a loss of buying power over the course of your retirement.

Lack of beneficiary/inheritance options – If you pass away, only your spouse may be able to receive a portion of your pension payments.

Lump-Sum Pension


Greater control – You will have complete control over your money. You can invest it as you want and reap the full rewards of any growth. It could mean more money for yourself and your beneficiaries.

Beneficiary/inheritance options – With a lump sum, you can pass on the remaining balance however you see fit – to your spouse, children or a charity.

Inflation protection – A lump-sum payout invested in an IRA gives you the ability to choose investments that may help your money grow above the rate of inflation.


Market risk – Investing in the market always carries the risk of losing money during a market downturn.

Greater responsibility – You will be in charge of your money, which can be a bad thing if you lack the confidence to manage it well enough to sustain you over the course of your life. In addition to making prudent investment decisions, you have to set an appropriate spending rate to avoid outliving your money.

The pros and cons between taking a monthly and lump-sum pension should be heavily considered as they apply to your personal situation. If you’re in this situation, work with a financial adviser to check the numbers and help determine what option is best for you.