Ask Terry Questions Small pension – lump sum or monthly benefit?

Small pension – lump sum or monthly benefit?

By Terry Savage on March 10, 2020 | Financial Planning / Retirement

When I retire soon, I’ll have a small pension of about $32k. Is it better to take that as a lump sum, or take the $175 a month benefit payments? The amount is a relatively small part of my overall retirement assets of savings, 401K, Roth 401k, Roth IRA, and traditional IRA. I’m single, with a significant other, he is financially independent. I’m considering the lump sum & eventually convert some funds to Roth. Thanks! Love your Facebook page, books and podcasts!

Terry Says

Thanks for your nice comments. Well, the first thing is that if you decide to take the lump sum, you don’t want to pay taxes on it! Check with your employer to see if you can roll it over into an IRA rollover account at a place like Fidelity or Vanguard. They will handle all the details, and help you let the money continue to grow. Otherwise you will pay ordinary income taxes on the withdrawal — and probably blow the balance of the money!

If you can’t roll it over, this is such a relatively small amount that it doesn’t make much sense to take a monthly stipend. But if you want to compare mathematically to see if it’s a good deal, go to and insert your $32,000 lump sum amount, gender, age, and state of residence. That will tell you how much you could get monthly if you deposited the $32,000 into an immediate life annuity. It will let you know if they are giving you an appropriate monthly amount in your pension.

Finally, if you’re going to open a Roth and put some money in, THIS is the year to do it — Remember, you can only contribute to a Roth out of “earned income.” So don’t wait to consider it until you’re retired!



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