Lump Sum or Annuity

Frequently, retirees are required to make decisions regarding whether they wish to receive a lump-sum cash distribution or roll-over a defined benefit (DB) or defined contribution plan (DC) into an IRA account.

The following are offered as considerations in making this important decision. 

Reasons to Roll Over to an IRA
Your want full control of your taxes.
You want full control of your money.
You do not need the security of a fixed income.
There is not inflation adjustment for the pension or annuity so you will need to withdraw mroe money each year from other investments to make up for inflation.
You are concerned about the financial health of your employer or the insurance company who is underwriting the annuity.
You hope to leave an inheritance.
You do not want to be "locked-in" to your decision.

Reasons to Choose an Annuity
Hassle-free fixed (or inflation adjusted) income for life.
You want the security of depending on a fixed amount of income and do not want to take any risk with it.
You believe that you have a longer than average life expectancy.
You are not concerned about leaving an inheritance.

If you take a lump sum distribution, it is best to first open an IRA acccount and then roll the money directly into that account from your employment account.

Remember, that if you annuitize the account, you will get steady income for life, however you will not be able to change your decision.  One you annuitize, you cannot go back.  If you take a lump sum, you can lways take a portion of htat amount and buy an SPIA, perhaps after shopping for a higher payout rate than is offered by your employer.

Also, be aware that incone taxes are due on all annuity income and on any lump sum which is not rolled into an IRA.