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For one reason or another, you’ve accrued an amount of money owed to you in a pension and now you’re faced with a big question. Should you take the lump sum or annuitize it into regular payments? This decision can significantly impact your retirement plan, so let’s break it down. The question for most people is, what’s the bottom line? And for others, if I take the lump sum, how do I pay myself over time? These are great questions and the answers depend on a combination of factors, some mathematical, some personal. Let’s go through the key considerations step by step. Number one, your age and life expectancy. If you’re younger and expect to live a long life, annuitizing might make sense because you’re locking in guaranteed income for life. However, if you have health concerns or a shorter life expectancy, the lump sum may provide better value. Number two, comparing lump sum versus annuitized payments.

Take the lump sum amount and calculate what it could grow to if invested wisely. Compare this to the total payments you’ve received from annuitizing. Don’t forget to factor in compound interest, withdrawals for income, and market assumptions when running the numbers. Number three, tax strategies. A lump sum might give you more control over your taxable income. You can withdraw money more strategically, keeping you in lower brackets or avoiding Medicare ERMA surcharges. Annuitizing, on the other hand, means receiving a steady stream of income that could push you into higher tax brackets. Number four, flexibility. Lump sum gives you complete access to the funds. You can use the money for emergencies or large purchases or gifting. Annuitizing, the payments are locked in, so you lose flexibility but gain predictability. Number five, retirement income strategies. If you take the lump sum, you need a structured strategy to pay yourself.

At Boca Retirement Strategies, we use the guardrails approach to ensure clients have consistent retirement paychecks without running out of money. Compare this to annuitizing. Does the annuity offer cost-of-living adjustments to keep pace with inflation? Many pensions don’t, which could leave you falling behind as living costs rise. 6. Legacy Goals Annuitizing often ends the payments at your debt or significantly reduces what your heirs receive. With a lump sum, if something happens to you tomorrow, the remaining funds can go to your loved ones, ensuring your legacy continues. Here are some subjective questions to ask yourself. While you can run the numbers with a calculator, this decision is more than just math. Ask yourself, how much do I value flexibility and control over my money? Do I want to ensure a legacy for my loved ones? Am I comfortable taking on the responsibility of managing a lump sum, or do I prefer the simplicity of guaranteed payments? Whether you take a lump sum or annuitize, it’s essential to think about the entire picture of your retirement.

Consider how this decision aligns with your goals, income, needs, and legacy wishes. I’m Hunter Brockway, founder of Boca Retirement Strategies. If you’re one of the proud few left grappling with this decision, in other words, one of the few left to receive a pension, let us know in the comments with a hand raised here. Before you go, if you’re looking for a free tech smart retirement plan tailored to your unique specific situation, you can head over to our website at BocaRetirement.com. Enter your information in the pop-up and we’ll build you a plan tailored to your unique specific situations at no cost or obligation. If for some reason that pop up doesn’t show for you, if you click out of it, no worries. Just send us an email at contact@BocaRetirement.com. Again, that’s no cost, no obligation. We’ll put together a simplified plan for you to help you take the next steps towards a successful stress-free retirement with more money and fewer taxes.

See you over there. Bye.