Retirement Planning/Lump Sum Pension?


QUESTION: My wife is being offered various options on her Pension from a large retailer.  She is being offered a lump sum of just over $100k, or various lifetime monthly payouts. We are thinking that the 50/50 option, which will pay $615/monthly would probably be the best option. Between us we currently have about $340k in IRA and 401k plans. She will be turning 65 in February 2014, and is planning on working until age 66 and will not begin drawing SS until then. I plan to work another 305 years and will begin drawing SS then.  I have no pension plan, just my 401k and other savings. Should we even consider having my wife take the lump sum?  Any advice would be greatly appreciated.  Thanks.

ANSWER: Dennis,

I also received your follow-up on the 305 years correction.  It gave me a chuckle. I usually respond quicker, sorry for the late one.

Very good question.  Here are some things to think about to narrow down the answer:
It is unlikely that a lump sum would ever make sense.  Can you describe the 50/50 option you are thinking about?  Is that $50k lump sum and the $615 in monthly payments?  What I want to show you is what it would cost someone to buy an annuity of the same amount.  You will be very surprised what someone would have to pay to get that monthly payment.  Also, can I ask you about the health of your wife?

One last thing, do you have any high interest debt right now?  

I will respond right away.  


---------- FOLLOW-UP ----------

QUESTION: Joe:  No apologies are necessary.  I am sure that you are quite busy, too.  I appreciate your reply, and will do my best to answer your questions.

My wife has asthma, and is a 11 year breast cancer survivor, but is in pretty good health overall.  Other than a new pair of replacement knees, I am in good health, too.  

As far as debt, we have a mortgage balance of around $156k at 4.75% interest on a home worth about $250k.  We have $5k balance on an auto loan at a 1.99% rate, and about $8k in credit card debt at 7.24%.  

The options on my wife's pension are:
1.  $100.381.06 lump sum
2. 50% Joint & Survivor annuity ($659.45 with 305.23 to survivor if upon her death#.
3. 75% Joint & Survivor #$588.63/441.47#
4. 100% Joint & Survivor #$568.25/568.25#
5  60 Payments Certain #$654.04/654.04#
6. 120 Payment Certain #$638.94/638.94#
7. 180 Payments Certain #$617.18/617.18#
8. 240 Payments Certain #$591.59/591.59)

Any advice that you might have would be greatly appreciated.  I am hoping that you don't advise me that I really do have to work for 305 more years.  Thanks again.  


There is no formula to pinpoint the exact right choice.  It comes down to a little guesswork and preferences.  From the information you have provided, the guarantee of 240 payments for your wife / you as the survivor is a good one at $591.59.  You would not be able to purchase that with what would remain (after tax) with your lump sum distribution.  That is what I would do if I were in your shoes.

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Joe DiDomenico


I can answer any questions related to Individual Retirement Accounts (IRA). This includes what can and can't be done with an IRA because of IRS regulations. I can also answer questions about the different types of retirement accounts and how they apply to different people in different situations. I can help direct people on what steps to take next with their retirement accounts.


I was a Financial Consultant at Merrill Lynch for 7 years and a Senior Vice President at CitiGroup for 3 years.


I wrote a book entitle, "Blame It On the Broker", currently for sale on Amazon.

Bachelor's in Financial Services from San Diego State University

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