A lump sum payment allows you to leave assets remaining at the time of your death to your children or other heirs. A lifetime income payment ceases at your or your spouse’s death.
If you choose the lump sum option, consider rolling it over to an IRA to preserve its tax-deferred status. This should be done with the assistance of a financial adviser.
Taxes
Taking a lump sum allows you to reduce your tax bill in retirement. You can invest the money in a tax-deferred account and defer paying taxes until withdrawal. If you roll over the lump sum to an IRA, you can lower your tax bill even further by deferring the 20% withheld from your distribution.
Another way to control your income taxes in retirement is by purchasing an immediate annuity with a fixed-income payout for ten years or less. These annuities typically have low investment costs and fees, including management and transaction charges.
A big advantage of a Boeing pension lump sum is that you can leave any remaining assets to heirs at your death, which isn’t an option with a monthly pension. However, if you choose to take a lump sum, you must spend your money wisely in retirement. You can minimize this risk by working with a financial adviser to develop a budget and investment plan.
Investing
Investing a lump sum can be advantageous if you are comfortable doing it yourself or with the help of an advisor. But you need to know the amount of your payout, how much risk you are taking with investment decisions, and what your short-term spending needs are.
Depending on where you invest the lump sum, you may lose protections from bankruptcy or investment losses that come with your pension payments, which the Pension Benefit Guaranty Corporation or the federal government guarantees. Choosing an annuity option with your lump sum might eliminate that concern, but it can also limit your choices.
A monthly pension ceases when you or your spouse die, and the rest of the funds may go to heirs or family members. If you are in poor health or have a family history of longevity, a lifetime of regular income might be more attractive than the lump sum offer. An annuity may have high charges that can eat away at your returns.
Relatives
Many pension plan sponsors offer lump sums to free themselves from the obligation to pay future retirees their pensions over their lifetimes. However, the actuarial calculation used to determine whether you receive more money by taking a lump sum or in a lifetime stream of monthly payments is complex. It relies on several factors out of your control, including how long you live, what investment returns you might achieve on the lump-sum amount, and current interest rates.
If you have confidence that you can invest on your own and expect to earn higher investment returns than the 6% rate needed for the lump sum option to be more valuable than a lifetime of monthly pension payments, then taking the lump sum may make sense for you. But you must be very careful not to spend that money too quickly. A financial adviser can help you develop a strategy to protect your wealth.
Long-Term Care
One big benefit of a lump sum is the ability to use the money in ways that might not be possible with an annuity. This can be particularly advantageous to people needing long-term care, such as spouses or children. Generally, an actuary calculates your pension’s “commuted value” to determine if receiving a lifetime monthly payment or a lump sum is more beneficial. This number considers your age, salary, life expectancy, and various factors such as interest rates set by the IRS. If the actuary says a lifetime monthly payment is more beneficial, you should opt for this option. However, if the numbers suggest you would get more by taking a lump sum, you may want to consider your options carefully.
