Pension lump sum vs annuity.

In plain English

When you leave a job with a traditional pension, the plan often lets you pick how to receive your money. The lump sum is one large payment you control and invest yourself, but you also bear the risk of running out. The annuity option pays a fixed amount every month for the rest of your life (and sometimes your spouse's life), shifting the longevity risk back to the plan. There is no universally correct answer. It depends on your health, other income, comfort managing money, and how the plan calculates the lump sum.

01Why it matters

This is usually a one-time, irreversible decision that shapes your income for decades, and a wrong call can mean either outliving your savings or leaving guaranteed money on the table.

02The math, step by step

Say a plan offers either a $300,000 lump sum or $1,600 a month for life starting at age 65. Over 20 years the monthly option pays $384,000 in total, more than the lump sum, but only if you live that long. A healthy person with no other guaranteed income might value the lifetime checks, while someone with serious health issues or a large 401(k) might prefer the cash.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT