Episode 83: Pension Lump Sum or Annuity – How to Make the Right Choice

If you have a defined benefit pension and have been offered a lump sum instead of lifetime income, the choice can feel overwhelming. Do you take the guaranteed paycheck for life or cash out and control the money yourself?

I’ve had this conversation with countless people over the years, and it often comes down to the numbers, your goals, and the risks you’re willing to take.

Why Your Pension Might Not Be as Safe as You Think

A defined benefit pension promises lifetime income after you retire. But those promises don’t always hold up. Many of the largest corporate pension plans in history have collapsed, leaving retirees with less than they expected.

Examples of major pension plan failures include:

• • United Airlines (2005) – $7.4 billion plan, 124,000 members affected

• • Bethlehem Steel – 2003 – $3.7 billion, 91,312 members affected

• • US Airways, LTV Steel, Delta, Pan Am, TWA – All faced severe funding issues

When a plan fails, the Pension Benefit Guarantee Corporation (PBGC) steps in. While it can help, it only covers benefits up to certain limits—and even the PBGC needed a $97 billion bailout in 2021.

A recent case in 2024 shows the risk. United Furniture Industries shut down abruptly, fired workers via text and email, and left hundreds in Mississippi, North Carolina, and California with reduced benefits when the PBGC took over.

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The “Driving the Retirement Bus” Problem

Relying on a corporate pension is like riding a bus you don’t control. You don’t know if the driver is skilled, distracted, or steering toward a cliff to reduce the company’s liability.

Annuities, on the other hand, are like buying your own car. You know who built it, you know the terms, and you can choose a model from a reliable dealer.

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Comparing Lump Sum and Annuity Options: A Real Case Study

Let’s look at a real-world example I recently reviewed for a 64-year-old man with a 59-year-old wife.

Pension options offered:

Option	Monthly Income	Survivor Benefit	Death Benefit
Single Life	$2,000	None	None
50% Survivor	$1,900	50% to spouse ($950/month)	None

Lump Sum Buyout Option

• • One-time payout: $350,000
    

• • Can be used to purchase an annuity or other investments

• • Flexible for creating a guaranteed income with a non-reducing spousal income and death benefits

The pension had no cost-of-living adjustment, meaning payments would stay the same for life.

The Annuity Comparison

We compared the lump sum option to a fixed indexed annuity with an income rider from an A-rated company, deferred for two years.

Annuity option:

• • Monthly income: $2,240 for both lives (joint lifetime income)

• • Annual income: Nearly $27,000

• • No income reduction for the surviving spouse

• • Death benefit: Any unused portion of the $350,000 paid to beneficiaries

• • Guaranteed for both lives

The Key Advantages in This Case

When comparing a pension lump sum vs an annuity, this scenario showed clear benefits to the annuity:

• • Higher monthly income: $240 more than the single-life pension, $340 more than the 50% survivor pension

• • Spouse’s income protected: No reduction after the husband’s passing

• • Beneficiary protection: Any remaining principal paid to beneficiaries

• • Control over provider: Backed by an A-rated insurance company

Even if the incomes had been the same, protecting the spouse’s full income and adding a death benefit would still make the annuity the stronger choice here.

Should You Take the Lump Sum or the Pension?

Every situation is different, but here are a few points to consider:

• • Corporate pensions can fail — and when they do, benefits often get cut

• • Government pensions are generally more stable, but still worth reviewing for spousal and death benefits

• • Annuities can provide guaranteed lifetime income, spousal protection, and a death benefit

• • The smartest move is an apples-to-apples comparison to see who will pay you the most and protect you the best

Take Control of Your Retirement Income

If you’ve been offered a pension lump sum, don’t guess. Run the numbers side by side. Whether the annuity or the pension comes out ahead, you’ll know you made the choice based on facts—not hope.

I help people do exactly this every day. We look at the payout options, compare them to annuity solutions, and see which puts more guaranteed income in your pocket while protecting your loved ones.

Here’s how to get started:

• • Book a short Zoom meeting with me at AtlasAnnuity.com

• • We’ll run a no-opinion, no-hype, apples-to-apples comparison

• • You’ll leave knowing which choice will give you the best long-term result

And if you’re new to annuities, watch my video series “20% More Spendable Income in Retirement” to see exactly how they work and how they can fit into your retirement plan.

All the best,

Marty Becker

Podcast Episode 83: Pension Lump Sum or Annuity – How to Make the Right Choice

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