Electing the right pension distribution is a big decision that can play a significant role in your retirement.

In this video, I’ll show you how to determine which one is best for you – lump sum v. annuity.

Ari Taublieb, MBA is the Vice President of Root Financial Partners and a Lead Financial Planner (Fiduciary).

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Timestamps
00:00 – Introduction
1:07 – Annuity v. Lump-Sum (in light of interest rates)!
2:20 – Example
3:41 – Is This A No-Brainer?
5:37 – Guaranteed Monthly Income…
7:17 – Imputed Rate of Return
9:00 – Anti Cookie-Cutter Analysis
10:23 – STOP WORKING!!
11:20 – Pension Summary

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How Should I Collect My Pension: Lump Sum vs. Annuity?

Pensions play a crucial role in ensuring financial stability during retirement. These financial arrangements offer individuals a regular income stream after they stop working. However, when it comes to collecting a pension, individuals are often faced with a choice between receiving a lump sum or opting for an annuity. So, which option is the better choice? Let’s delve into the characteristics of both lump sum and annuity payments to help you make an informed decision.

Firstly, let’s define the terms. A lump sum payment refers to receiving your entire pension savings in one go, while an annuity entails receiving regular payments over a fixed number of years or until the end of your life. Each approach has its own unique advantages and considerations.

A significant advantage of receiving a lump sum is the immediate access to a large sum of money, which allows for flexibility in investing or managing expenses. This can be particularly beneficial if you have specific plans or immediate financial needs, such as paying off debts or purchasing a property. By having control over the funds, you can tailor your investment strategy according to your risk tolerance and personal financial goals. However, it is crucial to utilize the money wisely, taking into consideration your long-term financial aspirations and potential expenses in the future.

On the other hand, opting for an annuity offers a regular income stream for a specific period or for the rest of your life. This can be advantageous if you prefer a stable and predictable income, especially if you are concerned about outliving your savings. Annuities offer peace of mind, as they guarantee a fixed payment regardless of market conditions or fluctuations. Additionally, for those who are not well-versed in managing investments, choosing an annuity eliminates the risk of poor investment decision-making and provides a sense of security.

One important factor to consider when deciding between the two is your life expectancy. If you have good health and anticipate a longer life, an annuity may be a prudent choice, as it ensures a constant income until the end. Conversely, if you have health concerns or believe your life expectancy may be shorter, a lump sum payment may be more appealing, as it allows you to access your pension in its entirety.

It is essential to evaluate your financial situation, goals, and risk tolerance when contemplating how to collect your pension. Consulting with a financial advisor is strongly recommended to help you assess the pros and cons associated with each option and make an informed decision based on your unique circumstances.

In conclusion, choosing between a lump sum payment and annuity when collecting your pension requires careful consideration. The decision should be aligned with your financial aspirations, risk tolerance, and expectations for the future. Understanding the advantages and considerations of each approach is crucial in order to make a well-informed choice that will best serve your financial needs during retirement.