What’s the best way to take a pension?  The question was asked in Money Magazine.  Should you take a lump sum and manage it yourself or should you take a monthly payout for life?

An interesting question and one which many boomers getting ready to retire I’m sure are wondering.  A lot depends on your health, potential longetivity, and need for cash.

My mom for example had the option of taking a lump sum or pension for life.  She choose the pension for life, for reasons listed above and below.

One, she was only 55 and in great health.  The chances of her living a long time is pretty good.  Especially with her family longetivity for women.  Her mother is still alive at 80, her great-grandmother is alive at 99 and on her father’s side her aunt is still alive at 92 and her grandmother lived into her 90s.  So chances of a long life is pretty high.

Second, she has no debts.  Because she has no debts, she has no need for a large sum of money to pay off a mortgage or car loans, etc.  Her minimum monthly expenses are low and she can live on the monthly payout.  Plus she has extra savings that she can tap in case of emergency.

We calculated that with her monthly payout of $4k/month it will take 4 years to break even, I think she can live to age 59 without dying.  However, there will be nothing left for me, when she dies. Which is one reason I like the pension.  If she had taken the lump sum, she might have felt obligated to leave me something.  This is not something I wanted her to do.

So overall I think if you are in good health take the monthly payout. But if you still have a mortgage or other debts or are in poor health and have a short life expectancy, then take the lump sum.