Should retirees take the pension, or 'the lump?'

Given the choice, should a soon-to-be-retiree take the monthly company pension or the whole pension amount at once – known as "the lump?"

Entire taverns can be polarized by this question.

The guys down at Buster's Hideaway are staunch in their belief that taking the lump will separate them and their money from their soon-to-be former employers -- a good thing in their view because they fear that their employers might renege on their monthly obligations.

I have a brother-in-law who is among those at Buster's facing this decision and he would really like to go for the lump – he's none too trusting of the company he's worked for more than 30 years. But he can't get beyond the nagging fear that he'll take the money and lose it.

At the risk of overstepping my familial bounds, I researched and wrote about the question for, where I'm a contributing editor. In my Bankrate report. I tried to present both sides of the question fairly because that's the journalistic thing to do. But I'll tell you here, if my husband and I had to make that decision, I'd be lobbying hard for the monthly pension – despite the fact that my husband is an accountant for an insurance company and an expert in financial management.

I love him and I think he's really smart, but taking a lump sum and making it last for as long as 40 years -- people live to be 100 all the time these days -- is a daunting task even for someone who thinks he knows what he's doing.

So why would I trust the devil I don't know rather than the devil I do?

For one things, since 2006 when Congress passed the Pension Protection Act, companies have had far less leeway in the way they manage pension funds. Making whoopee with money that belongs to pension recipients is likely to land them in front of a grand jury. And if a company has bad luck managing their pensioners' money, Uncle Sam's Pension Benefit Guarantee Corp. will step in and take over. Not the solution anybody would hope for, but the PBGC says it historically has paid 100% of what was owed to 84% of the people who ended up depending on it. Those who weren't paid 100% were owed pensions greater than $5,000 per month, a problem most of us won't have.

A retiree who takes the lump or has that option will be swarmed by financial planners and insurance salesmen, offering to sell him a private annuity guaranteed by an insurance company. Insurance companies go belly-up too. They're guaranteed by state guarantee funds that for the most part cap reimbursements to annuity customers at $100,000. If the worst happens that's chump change in this game.

Taking the lump and managing the money by turning it over to a financial genius or worse yet investing it yourself in stocks, bonds and Treasuries is the riskiest option of all. If you're tempted to do that, hold your breath and think hard about the financial meltdown of 2008. You'll come to your senses soon.
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