Pension Plans: 4 Advantages to Taking a Lump Sum

When dealing with pension plans, you will usually be given the option to take a lump sum upon retirement. When considering this strategy, there are a number of factors that you will have to think about. Here are some of the advantages that you will get from taking a lump sum from your pension plan.

1 - No Worries

Whenever your money is tied up in a company pension plan, there is always an uneasy feeling among most employees. There is a chance that the pension plan could be underfunded and ultimately affect the company itself. If the company is losing strength, they could be funneling assets away from the pension plan in order to stay afloat. If you are counting on this pension plan for retirement, this can be very unsettling. Once you take a lump sum from the plan, you will no longer have to worry about whether the company is strong or not. You have your money and you can disregard what happens to the company from that point forward. If you instead chose to take regular payments from the pension plan, you would still have to worry about how the company is performing overall.

2 - Control

One of the major problems that many people have with pension plans is that they do not have any control over how their money is being invested. The pension plan administrator is in charge of all of the details regarding investments. When you take a lump sum out of your pension plan upon retirement, you will be able to be in charge of your own investment decisions. Many people like to have complete control over their money and where it is being invested. You could roll this money into an IRA and then invest it into a number of different securities. This provides you with a lot of flexibility and control with your retirement dollars.

3 - Inflation

Something else that you will want to consider in this decision is the effect of inflation. When you take regular pension payments, there will be no allowance for inflation. You are going to receive the same amount every month regardless of what happens in the rest of the economy. Having control of your money will allow you to potentially make greater gains in order to keep up with inflation. When you choose to take regular pension payments, the pension manager only has to worry about giving you exactly what was promised every month. Twenty years from now, there are no assurances that your pension check is going to be enough to live on.

4 - Inheritance

You should also consider whether or not you want to leave an inheritance to your loved ones after you die. If you choose the pension payments, your payments will stop once you pass away. However, if you take a lump sum and invest the money, there is a chance that you will still have some money left over to give them when you pass away.

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