Why pension plan lump sums are a trap for the unwary

Steve Vernon, Stanford Center on Longevity

Steve Vernon

If you work for a company with a pension plan, don’t be surprised if you get an offer soon for a lump sum buyout – a deal where you accept a pile of cash in exchange for the promise of lifetime income when you retire.

The price tag for these offers is especially attractive right now, from the plan sponsor’s perspective. But are lump sums a good deal for workers?

RetirementRevised.com has teamed up with actuarial expert Steve Vernon to offer a free guide explaining why lump sum deals often are a trap for unwary pension plan participants. Writes Steve:

I worked for 35 years as a consulting actuary, helping large corporations design, manage and communicate their retirement programs. Whenever I saw a lump sum buyout offer, acceptance rates varied from 50% to well over 90%. This made me shake my head in frustration, as often I felt it was the wrong decision. Now don’t get me wrong. In some instances a lump sum is the right decision. But too often people choose it for the wrong reasons. This article addresses common myths and explains the pros and cons, to help you decide what is one of the most important financial decisions you will ever make. You’ll live with this decision for 20, 30 or 40 years, so it’s well worth the minutes spent reading this article and thinking about the issues.

Steve is a columnist for CBS MoneyWatch and a consulting research scholar at the Stanford Center on Longevity. He is the author of several books, including Money for Life and Recession-Proof Your Retirement Years: Simple Retirement Planning Strategies That Work Through Thick or Thin. More information about Steve’s work can be found at his website.

Please click here to download Steve Vernon’s lump sum guide as a PDF file. At the same time, you’ll be signing up to receive the free RetirementRevised email newsletter, which includes weekly updates on Social Security, Medicare, investing in 401(k)s and IRAs, careers after age 50 and much more.

 

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