Should You Take a Lump-Sum Pension Payment?

Imagine you and your spouse are on a flight to visit your kids and grandkids. After discussing how excited your are to visit your family, the conversation turns to your finances and how happy you are with your decision to take the monthly pension your were offered upon retirement instead of the lump sum rollover into your IRA account. Thinking about the monthly pension of $5,000, or $3,000 if you spouse survives you, provides great psychological comfort.

Suddenly, the pilot makes an announcement, “We have an emergency!” Those are the last words you and your spouse hear before the plane crashes down, leaving no survivors.

Your children contact your financial advisor to ask what paperwork needs to be completed so they can inherit your IRA. Your financial advisor informs your children there is no paperwork to complete because there is no inheritance. Your children are at first in disbelief, and then become livid when your financial advisor explains the risk you took with the monthly pension instead of the lump sum rollover into your IRA.

When your financial advisor further explains that they will not receive even a portion of your monthly pension they literally break down in tears. They cannot reconcile how your worked for 40 years to earn that pension or lump sum rollover yet not a single penny was paid nor will a single penny ever be paid based on your decision to take a monthly pension.

If you choose to take a lump sum rollover into IRA account you will definitively be paid a set amount versus the risk of not being paid with the monthly pension choice.

Aaron Skloff, AIF, CFA, MBA

CEO - Skloff Financial Group

www.skloff.com

Aaron Skloff, AIF, CFA, MBA of NJ 9:43AM June 11, 2012