Considerations To Keep In Mind When Facing Choice To Cash Out Pension

Despite their decline, pensions still exist and many people are faced with a decision when given the option to cash it out for a lump sum. For some, the prospect of a huge cash payout can be too much to resist. But factors must be taken into consideration such as the following:

• The stability of the pension fund should be a key consideration. A pension that looks to have future troubles might make the lump sum worth taking if there are other, safer investments that offer comparable rates of return.
• Look at the growth that can be expected from the pension. If monthly payments only increase a small percentage year to year, then a lump sum that would make better returns invested elsewhere could be an attractive change for the financially aggressive.
• Does the pension continue only for life or are heirs able to take an interest in remaining principle when the beneficiary dies? A lump sum payment might work better for those that have short life expectancies who will be unlikely to collect over time the amount they could take via a one time payout.

See Ken Moraif, How to decide whether to take a pension or a lump sum, Market Watch, October 6, 2015.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.