Factor in inflation. Many pensions and annuities pay out the same amount every year and don't increase payouts to keep up with inflation. "You will have the opportunity to protect yourself against inflation if you take the lump sum," says LaBrecque. You could invest part of your lump sum in something guaranteed to keep up with inflation such as Treasury Inflation-Protected Securities or in asset classes that have historically kept pace with inflation such as stocks, commodities, or real estate.
Evaluate your spending habits. If you select the lump-sum option, you need to develop a spending plan that will make this one-time payment last the rest of your life—however long that is. Pensions and annuities can help prevent you from spending down your savings too quickly because you get a limited payment each month. They also ensure that you will still have money coming in if you end up living longer than expected. Richard Getman, a GM retiree and certified financial planner for Getman Financial Planning in Mount Pleasant, S.C., wasn't offered the lump-sum payment and isn't interested in one. "If I were offered a lump sum, I would pass it by," he says. "For me, a guaranteed monthly payment is easier and less stressful than trying to squeeze out a return to make the lump sum last a lifetime."
Don't miss the deadline. GM retirees have until July 20, 2012, to make their future payment decisions. "Get a second opinion and don't make a hasty decision," says LaBrecque. "Doing nothing will keep you where you are. If in doubt, stick with your annuity."