We have $1,800,000 in retirement savings. We have no debt. We could take lump sum payments on our pensions that would equal $700,000 or monthly payments that would equal $49,000 annually. My wife is retired and I will work another 4 or 5 years. We are both in good health. Is there a "better" way to go between the two?

Terry Says:

Well, there are several different questions in here. And it’s also difficult to comment without knowing how old you are.

I’m going to assume that your $1.8 million is in some kind of IRA rollover account.  You’ll need to diversify that account, keeping a good portion in stock to offset the potential costs of inflation.  Then, I’ll assume that your pensions are in addition to Social Security.

If you’re wondering whether the $700,000 or $48,000/year is a “good deal” just go to www.immediateannuities.com, and put in your age, state of residence, gender, and whether you want to make your pension last only your lifetime, or a joint lifetime.  Then with a click you’ll get quotes on a monthly or annual payment from top-rated insurance companies.  That’s how you can judge whether the monthly vs lump sum being offered is a good deal.

Next, I would suggest you see a fee only certified financial planner (www.napfa.org) to engage in some serious planning.   You’ll have to figure out your spending plans for retirement and balance the need for inflation protection (from stocks) with the need for income that you can get from SS and your pension.  Remember, at only 3% inflation, the buying power of your money is cut in half in 25 years — so you don’t want to lock it all into fixed monthly payments.

A good financial planner will help you understand your future spending needs — including healthcare, and possibly the need for long term custodial care –a huge potential expense.  These are all things to take into consideration before making the “lump sum vs pension payments” decision.

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