Everyone’s situation is different so a lump sum may make sense for some people and not for others. That is why it’s essential to consider all the facts and consult with a financial professional.
Ultimately, the decision comes down to how much you value monthly payments vs. the present value of your one-time lump sum offer.
Lifetime income
Choosing a Boeing pension lump sum or monthly payment in retirement can be complicated. A pension gives retirees a guaranteed lifetime income in exchange for a portion of their work years. But that payment is based on actuarial calculations and interest rates, which can change.
A lump sum is more flexible and can provide the freedom to travel or pay off debt in early retirement. But it can be tempting to spend too much of it, and a financial adviser can help you with a budgeting tool.
You can also use the lump sum to purchase an annuity within an IRA. These annuities offer a monthly payout that may mirror the pension payout; some have inflation protection. However, doing the math to ensure you get an apples-to-apples comparison would be best.
Taxes
In contrast to the periodic payments that your pension provides, if you accept a lump sum amount, you will be required to pay taxes immediately. If you can transfer this money into an IRA, you can postpone paying taxes until you take the money. However, it is crucial to speak with a financial expert to be sure that you will be able to do this.
You will have more control with a lump sum, but this can be problematic if you are a spendthrift or unable to monitor your spending. You can set spending restrictions and develop a budget with the assistance of a financial advisor.
Additionally, you can receive some of your pension in a single payment and the remainder in a series of monthly payments. This option can be good if you are concerned that you will outlive the value of your investment portfolio. However, you should consider your health status and family history of longevity before deciding whether to take this route.
Investments
While a lump sum may seem like a good idea, managing it must be challenging. Investing and handling a lot of money over time requires skill and discipline, a challenge for many retirees. It also transfers all investment risk to you, increasing your chances of losing money. If you’re unsure how to invest your pension lump sum, consider working with a financial advisor.
Another option is to roll your lump sum into an IRA and invest it as you see fit. The correct asset allocation varies greatly, but you should work with a qualified financial planner to determine your ideal strategy. You can also use the funds to purchase an immediate annuity, which provides a monthly income stream. It is an excellent choice for those who want to protect their longevity but don’t want to sacrifice growth potential. An annuity can also offer inflation protection. However, it is vital to remember that grants can have additional fees.
Access to money
A lump sum immediately gives you access to your pension funds, allowing you to invest the money. It also allows you to spend more of the total amount, but it can come with the risk of overspending and running out of money in retirement. It also requires good investment skills and the time to manage the funds.
If you want to ensure that you will have enough money for the rest of your life, a pension with monthly payments may be the better option. But it would be best to consider all the factors before deciding. Your financial adviser can help you weigh your options and guide you on what is best for your situation. They can also advise you on choosing the best strategy for investing a lump sum, including annuities in IRAs that offer steady monthly income.
