B&W’s Lump Sum Pension Option – What’s Right for You?
As a current or former B&W employee, you have a decision to make concerning your existing pension accumulation – whether to take a lump sum now, start an annuity, or wait till 65 to start the annuity. At Huff, Stuart and Carlton we have come up with a number of the pros and cons concerning the decision.
Advantages of taking the lump sum vs. the annuity:
1) You already will be receiving an inflation adjusted annuity at retirement- the US Government annuity-Social Security.
2) Properly managed, the lump sum can grow and keep up with inflation.
3) You can continue the tax-deferral into the future.
4) You have Roth IRA conversion opportunities (move $$ to Roth and grows tax-free).
5) You have tax-efficient withdrawal opportunities (timing of withdrawals).
6) May be possible in future to donate the amount to charity or leave to children/grand children.
7) You could grow the money and purchase an annuity in the future when interest rates may be better.
Disadvantages of taking the lump sum:
1) With poor market performance, the sum may not grow as expected.
2) You are responsible for managing the money – are you disciplined and methodical?
3) You run the risk of using it up by withdrawing too much due to easy access.
4) You may live longer than your average life span and have to make the money last longer.
Every individual or family is different, and your tax situations are different. You already may have other annuities besides social security. Each case is different, though statistically, people want to have control of the money. However, individuals not comfortable or conversant with investing should probably take one of the annuity options.