How to Choose Your Best Pension Payout Option

Presented by: James Artale

If you鈥檙e eligible for a defined benefit pension, you may have several payment options from which to choose. Your pension plan will calculate a basic single-life annuity automatically, and, if you choose a different payment option, it will recalculate the amount of your benefit based on mortality and interest rates. That means no one option is inherently better or worse than another, but each option needs to be evaluated in light of your financial and family circumstances and your expected longevity.

Exploring the Options

Which Payment Option Is Right for You?

When weighing your pension payment options, be sure to look at both the quantitative and qualitative factors. Consider your needs and resources, as well as your survivor鈥檚.

Here are five key questions to help you get started:

  1. Are you comfortable investing and managing a large sum of money? Is your survivor? A survivor may feel anxious knowing that he or she has to rely on investment returns from a sum of money, whereas a monthly pension payment would be guaranteed.
  2. Do you have the discipline to take only the amount you need each year from a lump sum? If you have other investable assets to hedge against inflation, you might want a steady, guaranteed income from your pension.
  3. How will needs and resources change if you or your survivor dies?
  4. What are your and your survivor鈥檚 life expectancies based on health, habits, and family history?
  5. Do you have life insurance that can potentially provide income to a survivor?

If your single life annuity benefit is significantly higher than a joint and survivor annuity, you might consider pension maximization using life insurance. This strategy may allow you to choose a higher single-life annuity and take the difference in monthly cash flow to fund a life insurance policy to replace your pension income at your death. To use this strategy, you should be insurable as a preferred non-smoker underwriting class, and your survivor should be comfortable monitoring his or her investments or have resources lined up to manage the money for him or her.

It is important to consider the benefits you may be giving up by selecting a single life or lump sum payment. Are you or your survivor foregoing any retiree health or other retiree benefits? These are significant issues to mull over when making your
pension decision.

Finally, most pension annuities from private-sector employers do not have a cost of living adjustment (COLA). You can鈥檛 outlive a lifetime annuity, but you run the risk of losing purchasing power as inflation erodes its value. If your annuity doesn鈥檛 have a COLA, one way to offset the effect of inflation is to allocate other retirement resources to a portfolio whose return has the potential to outpace inflation.

Important Resources and More Information

Most pension plans offer the options discussed here, but you should check the specifics of your individual plan. To learn more, ask your pension plan administrator for a summary plan description. Are you less than confident that your employer鈥檚 pension plan will be solvent enough to pay benefits for your and your survivor鈥檚 lifetime? The Pension Benefit Guaranty Corporation (PBGC) guarantees private pensions, but the maximum benefit under PBGC is limited. For more information on PBGC, visit

EmVision Will Help You Assess Your Situation

We can help you determine which pension payment option may be most appropriate for you and your survivor based on your personal circumstances. Contact us today to get started!


This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

James Artale is a financial advisor located at聽EmVision Capital Advisors, 251 W. Garfield Rd. 鈥婼uite 155 Aurora, OH 44202. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at聽(330)954-3770聽or at聽

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