In the United States, when a person is about to retire and your pension has an annuity credit, you are given three options:
- Take a lump sum payment.
- Take a monthly payment for life with your wife getting 50% payment after your death.
- Take a lower monthly payment for life with your spouse getting 100% payment after your death.
For most people, choosing the lump sum payment may be the easier choice. However, if you’re someone who does not manage money well, this may not be the best option.
So if you’re offered a lump sum upon your retirement, be sure to consider the follow factors before making a decision.
Age difference between you and your wife.
If you are older than your wife and are the one receiving pension, it’s best to choose the option that offers the higher benefit to the surviving spouse to ensure she will be well provided for after your death. However, if the pensioner is the wife and the husband is older, option two would be a much better choice since statistically women live longer.
Other sources of income upon retirement.
In the event that you, the pensioner, do not have any sources of income, experts advise to choose option two or three to ensure you won’t run out of cash when you’re older. It’s also advisable to have other sources of income aside from your pension so you can put off claiming your Social Security. This is because the longer you wait to claim your Social Security benefits, the more valuable it becomes.
Ability to invest the lump sum.
Do you have any experience in investing? Will you be able to responsibly invest your hard-earned money when you retire? Do you have the discipline to not spend all your lump sum pension? If not, there is a chance that you might go into bankruptcy in the end. Take these factors into account to ensure you’ll be able to make the most of your pension.