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Should I Take a Pension Lump Sum or Annuity?

Stan Haithcock
April 22, 2024
Should I Take a Pension Lump Sum or Annuity?

Hey there, Stan The Annuity Man here. So, you have a pretty good question, and hopefully, this is your situation. Should you take a pension lump sum or an annuity? I'm assuming that you've been offered that. You have reached the finish line, you're going to retire, and you need to decide which is best and if an annuity outside, like on the street, is better for you and what probably most agents are telling you to do. With that, I'm going to go into the details of this decision so you can make an informed decision.

‌All right, pension or lump sum, which is better? Or do you take the annuity? You have all these decisions. And then you have agents and advisors coming at you going, "No, take the lump sum and give me the lump sum and let me manage it," and "Take the lump sum and give me the lump sum and let me buy this annuity." Wrong answer. Here's the way to look at it from your standpoint. What do you want that money to do? If you need income to start right now, and I'm assuming they will allow you to attach your spouse or partner to that income stream for joint life income, then it's a commodity quote. Find out exactly what that guarantee is, and then contact us. We will run a comparison quote with all the carriers on the planet to see who has the highest contractual income guarantee.

‌The Will Do, Not Might Do

‌And then, it's very simple. A "will do," not "might do." In other words, you buy an annuity for what it will do, not what it might do. You choose the highest contractual guarantee. So, "Hey, Stan. This is what they're offering from the pension." Okay. Great. Let's take that number to the penny, and then let's reverse engineer that quote to see if the outside companies, including all the Immediate Annuity carriers, can beat the quote that you will receive from your company. It's very, very simple.

Now, what you need to know is I would say 90% or more of the time, and I'm just saying that based upon my experience as America's annuity agent and with thousands of clients, when people call me with this situation, the one that you're in right now, typically the company's offer is the best offer. You say, "Well, why is that?" They want to hold onto the money. They don't want to come up with a lump sum to give you even though they're offering it to you. They kind of have to do that anyway, but they want to make sure that they have the highest contractual guarantee, and typically, they do.

‌Claims-Paying Ability

‌Now, if they do, then it comes down to the Claims-Paying Ability of your employer or former employer and whether you want to keep the money with them. Because at the end of the day, they're going to be backing up those claims, that guaranteed income stream. So, shop around and choose the highest contractual guarantee. But in most cases, it's going to be your company, not the annuities that you can buy on the street.

‌Client Example

‌I get these calls all the time, pretty much every week. The last one that I can remember was eventful. The person was getting hammered by everybody. One guy wanted to sell him an Indexed Annuity with a lump sum. One guy wanted to sell him a Variable Annuity with a lump sum. Everyone was trying to sell him something. Somebody wanted to sell him life insurance with a lump sum. So, it really comes down to a couple of questions with all of my clients, and I asked him the same thing. Number one, what do you want the money to contractually do, and when do you want those contractual guarantees to start? And here were his answers.

Number one, he didn't need income. He just wanted the money protected. He didn't want to lose any more money. He didn't want to put it in the stock market. Fine. Great. Okay, perfect. So, you don't need an income stream. The annuity type of lifetime income stream that the company was offering was off the table because he didn't need that. He already had sufficient income. Then it came down to, "Okay, you want to protect the principal, so where do you take that money?" It's really, really simple because there are a couple of choices. There are Fixed Annuities, CDs, money markets, treasuries, and AAA, AAA municipal bonds, that fully protect your principal that you can get interest off of. I just told him, "Hey, if you don't need to buy a lifetime income stream or you don't need the income stream, then you can just transfer that money, take the lump sum, and just either put it in CDs or put it in a money market."

‌There's Never an Urgency

‌There's never an urgency to buy anything, please. Anybody that's pounding the table or calling you to say, "Hey, you need to sign the paperwork now to get this, this, and that," that's just complete garbage. It comes down to what you're trying to do with the money. And this person decided at the end of the day to transfer it to a bank, put it in short-term CDs, and just sit there and watch it for a while, which is fine. But don't fall for the Indexed Annuity pitch or the Variable Annuity pitch that's too good to be true.

‌Now, I sell Indexed Annuities. I'm not saying they're bad products. They're CE products. But a lot of people are making decisions to lock up their money long-term when they really don't need to. If you're not pound-the-table convinced of a reason to do anything, in other words, you're not sure if you want an income stream or you're not sure you want to put it in this product, then don't do anything. Just put it in an account and sit on it. There's never an urgency to make a decision. Go with your gut feeling. And always remember: Buy an annuity, if it fits you, for what it will do, not what it might do. Never buy an annuity for the hypothetical, theoretical, projected, back-tested, hopeful agent scenario. Buy it for the contractual guarantees.

‌Suppose you want to shop for Immediate Annuities compared to the annuity offer your company's giving you. In that case, you can watch this video I did on Single Premium Immediate Annuities and learn more about them. You can also download my Single Premium Immediate Annuity Owner's Manual for free.

Don’t forget that you can always get quotes from us at The Annuity Man. Either way, we can help you get the quotes you need. Do not hesitate to contact us. We will walk you through the process and not be persistent and pesty or try to sell you something. We're going to listen to you, give you good advice, and leave you alone to make an informed decision on your terms and on your timeframe. See you next time.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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