Pension Lump Sum or Annuity?

Summary

Jill on Money with Jill Schlesinger

Episode Summary: "Pension Lump Sum or Annuity?"

Date: January 5, 2026
Host: Jill Schlesinger, CFP®
Guest Caller: Amy from Iowa
Co-host/Expert: Mark

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Episode Overview

In this episode, Jill Schlesinger fields a call from Amy, a listener pondering a critical retirement decision: should she opt for a pension lump sum or take an annuity? Amy is planning retirement within the next 18 months and is seeking guidance on the best option, considering her family situation, financial resources, and desire for both security and potential legacy. The discussion highlights the practical, emotional, and strategic angles of major retirement decisions, offering actionable insights for listeners facing similar crossroads.

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Key Discussion Points and Insights

1. Amy's Background and Financial Snapshot

[03:22 – 08:31]

• Amy, 58, from Iowa, is hoping to retire in about a year and a half, coinciding with turning 60.
• Married to a 68-year-old husband who retired 3.5 years ago.
• They have three adult children, two fully independent, and one who just graduated college.
• Amy’s current annual income: $225,000.
• Husband receives ~$2,300/month Social Security and ~$972/month pension (total ~$3,200/month taxable retirement income).
• Estimated monthly expenses in retirement: $10,000-$11,000 (including healthcare).
• Substantial retirement and investment savings:
  • 401(k), pre-tax: $1.5M
  • 401(k) Roth: $230K
  • Old 401(k) rollover IRA: $265.5K (pre-tax)
  • Old 401(k) Roth: $125K
  • Husband’s IRA: $410K (pre-tax), Husband’s Roth: $195K
  • Brokerage account: $490K
  • Owns primary home, no mortgage, valued at ~$640K
  • Rental property: ~$65K value, $700/month income

2. The Pension Decision: Annuity vs. Lump Sum

[06:22 – 10:52]

• Annuity Option: Wait until age 62; then receive a little over $4,000/month (life only; slightly reduced for a survivor benefit, which would provide less to Amy due to husband being older).
• Lump Sum Option: Take over $600,000 as a lump sum at retirement (in 18 months); no further growth on lump sum during waiting period.
• No cost of living adjustment (COLA) on annuity.
• Important considerations:
  • Legacy: Annuity disappears at death (unless reduced for survivor); lump sum becomes an asset for heirs.
  • Risk Preference: Annuity offers simplicity and certainty; lump sum requires ongoing money management.
  • Asset Impact: Adding $600K to brokerage pushes total investable assets past $3M, creating more flexibility for withdrawals and estate planning.

Jill’s Framing:

“Do I like the guarantee to make my life a little bit easier or do I really wanna make sure that I pass assets to my kids as much as possible or have it for myself? That's the $600,000 question.” – Jill [10:56]

3. Personal Preferences and Family Needs

[09:43 – 12:31]

• Jill asks about Amy's comfort with money management, which has historically fallen to her in the household.
• Amy expresses confidence in her own investing abilities and leans toward keeping options open for her children.
• Husband was a moderate earner ($50K/year when working), highlighting the power of disciplined saving.
• Jill and Mark suggest Amy's strong financial position means she can't really make a “bad” choice but underline personal preference and legacy desires.
  • Mark: “A lot of this is just personal preference. You know, what kind of legacy they want to leave for their kids, if that's important to them.” [12:24]

4. Financial Planning and Practical Considerations

[12:31 – 14:27]

• Amy confirms an interest in passing on wealth to her children.

• Most at Amy’s company seem to choose the lump sum, likely due to the lack of COLA and increased flexibility.

• Jill’s verdict: Lean towards lump sum for flexibility and legacy, but reiterates there is no “bad” option given the family's assets.

• Jill offers key advice on estate planning:

  “Before you get all excited, you should revisit your estate planning because you have now grown kids, right. And if something were to happen to both of you, those kids would get a lot of money at once.” [13:14]

• Amy has already recently updated estate documents.

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Notable Quotes & Memorable Moments

• Jill's Framing of the Decision:

  “If you died three years from now, your kids don't get anything unless you said to me, like, oh my God, I hate managing money. It's the worst. I'm kind of leaning towards lump sum on this one, Mark.” — Jill [10:19]

• Mark's Reassurance:

  “As you like to often say, you know, you're not going to make a bad decision here.” — Mark [09:32] “You can definitely retire.” — Mark [09:41]

• On Saving and Compounding:

  “Here’s a couple that made money, didn't go crazy, socked it away. This is the power of socking it away. Just, like, put it away. Yep, you put it away, it grows. And this is like the magic of compounding.” — Jill [13:58]

• Final Affirmation:

  “Go forth and give your notice and not worry about a thing. You're in very good shape, really, Amy, and congratulations… So nice to talk to people who… you make good money. This is the power of socking it away.” — Jill [14:14]

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Important Timestamps

• [03:22] — Amy introduces her situation and retirement timing
• [05:35] — Family income and retirement budget details
• [06:22] — Pension options laid out (annuity vs. lump sum)
• [09:32] — Mark reassures that either path is sound
• [10:36] — Jill discusses the pros/cons of lump sum vs. annuity
• [13:11] — Jill leans towards the lump sum for flexibility and family legacy
• [13:14] — Estate planning reminder for significant assets

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Takeaways for Listeners

• Both annuity and lump sum can be valid, but personal comfort with risk, management preference, and legacy intent should guide the choice.
• Guarantee of income vs. opportunity for heirs is the central trade-off.
• The absence of a cost of living adjustment in a pension annuity makes the lump sum potentially more attractive.
• Strong saving and planning habits are the backbone of long-term wealth and flexibility.

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Closing Advice from Jill

“If you're like Amy… looking into the future and you don't know what is it that you should be doing with a pension benefit, or… whether or not you can really make a decision about this… get in touch with us… And, of course, let us know if you'd like to come on the air live. We love, love to talk to you live.” — Jill [14:29]

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Episode in a nutshell:
Jill and Mark walk Amy—and by extension all listeners—through the practical and emotional considerations of a major pension decision. The episode underlines the value of diligent saving, thoughtful risk assessment, and clear-eyed legacy planning, offering actionable wisdom in straightforward, jargon-free language.

Transcript

[Narrator/Advertiser]

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[Jill Schlesinger]

That's policygenius.com welcome to the Jill on Money Show. It's Monday, January 5th and yes, for many of us, that Monday after the holiday break. It's a tough one, let's be honest. You know, it's like, oh no, back into the swing of everything. The good news is there are some holidays that come up early in the first couple of months. You get little Martin Luther King Day, they get that off, which is good when markets are closed. I'm happy President's Day. All this is good. But what also may have happened is that during the holidays you may have been having some time to think about what's important to you. And maybe those thoughts need to be translated into some action. So if that's what you're feeling, if you're like, oh man, I gotta figure out what happens next for me, I want to buy a house or you know, I want to do something different or I know that my kids college education is really important, but I don't know, I don't know if I want to, like, work till I'm 70 to pay for their college, whatever it is that's going on in your financial life, get in touch with us. Go to jillonmoney.com, click the contact us button, write us a note, and let us know if you want to come on the air by checking the box. Don't forget while you're on the website to sign up for the free weekly newsletter, which entitles you to our blog as well. All right, right now, let's start the new year. Strong footing here. We've got Amy, who joins us from Iowa. Hi, Amy, how are you?

[Amy (Caller)]

Hi, Jill. I am great. I want to thank you guys for taking my call.

[Jill Schlesinger]

Of course. What are we going to do for you? What's going on?

[Amy (Caller)]

So I have a couple questions I'd like to run by you first. I want to see if I am able to retire in about a year and a half. And then my work, I have a pension and I can take it as a lump sum or annuity. I just would like to get your opinion on what would be the better option.

[RingCentral Advertiser]

Okay.

[Jill Schlesinger]

Amy, how old are you?

[Amy (Caller)]

I am 58.

[Jill Schlesinger]

Oh, all right. And is there something magic about one and a half years? Are you working in, like, an academic institution? Is that why we're, you know, sort of saying June of 27?

[Amy (Caller)]

No, there's nothing special about. Just seems like a good time to.

[Jill Schlesinger]

Retire before the summer. I think that's good. Are you married?

[Narrator/Advertiser]

Single, partnered.

[Amy (Caller)]

So married.

[Jill Schlesinger]

And how old is the spouse?

[Amy (Caller)]

He is 68. And he's 68.

[Jill Schlesinger]

Okay.

[Amy (Caller)]

He's been retired for, like three and a half years.

[Jill Schlesinger]

Is he happy in retirement?

[Amy (Caller)]

Yes.

[Jill Schlesinger]

That's what problem you're like, oh, I want that. Give me some of that.

[Amy (Caller)]

To join him in a year and a half.

[Jill Schlesinger]

Exactly. Do you guys have kids?

[Amy (Caller)]

Yes, we have three kids launched.

[Jill Schlesinger]

Okay, like, what's up with them?

[Amy (Caller)]

Two are launched and the third just graduated in December from college.

[Jill Schlesinger]

And do you have to keep supporting that person for another year and a half?

[Amy (Caller)]

No, but I would like to be able to keep him on my health insurance for. Till he gets a job.

[Jill Schlesinger]

Okay, fair enough. You mean until he's 26 or until he gets a job?

[Amy (Caller)]

Until he gets a job. Because when I retire, I won't be able to keep.

[Jill Schlesinger]

Right, right. Yeah. What are you going to do, like, in a year and a half? You're almost. Let's just call you 60. What are you going to do for five years? For how? Health insurance.

[Amy (Caller)]

So my company offers A good supplemental policy until I hit 65.

[Jill Schlesinger]

Oh, and you can't carry your kid on that. Or you could.

[Amy (Caller)]

I can, but it's. It'll be like $400 a month per person, so I prefer he get his own. But I could keep him on if.

[Jill Schlesinger]

You had to, just in case. Right. Okay, I gotcha. So how much are you making now? Given where you, you know, for the next year and a half, how much you to make are you making, Amy?

[Amy (Caller)]

I make 225 a year.

[Jill Schlesinger]

And your husband, is he receiving any retirement income?

[Amy (Caller)]

Yes. So he's collecting Social Security and that's 2,300amonth. And then he has a pension that's 972amonth.

[Jill Schlesinger]

Okay. So essentially about three, 3,200amonth in taxable for him. You've got year 225. What do you suspect you need to live on?

[Amy (Caller)]

You know, I've been looking at that the last two years, and I would say probably 10,000amonth. And then when I retire, I would probably need another thousand for car health insurance.

[Jill Schlesinger]

Now tell us about what the pension situation is for you. So it's 18 months from now you are retired. What are you weighing in terms of pension choice?

[Amy (Caller)]

So if I do the annuity, it's pretty much maxes at 62. So I would wait till I was 62. So I'd wait two years for the annuity.

[Jill Schlesinger]

Okay.

[Amy (Caller)]

And it would be 4,000. A little bit over 4,000amonth.

[Jill Schlesinger]

Okay.

[Amy (Caller)]

Or I could do a lump sum payment at. In a year and a half. It doesn't really grow. So I would just take it in a year and a half. Right. Be a little bit over $600,000.

[Jill Schlesinger]

Okay, got it. And when you said that 4,000amonth, was that your life only or was that also survivor?

[Amy (Caller)]

That is my life only. It goes down slightly if I do a survivor, since he's 10 years older, it's not a huge drop. Maybe a couple hundred dollars a month for. Okay, you know, 50, 75%.

[Jill Schlesinger]

Okay. Tell us about money you've saved.

[Amy (Caller)]

All right, so in my 401k, pre tax, I have 1.5 million.

[Jill Schlesinger]

Oh, all right.

[Amy (Caller)]

And then in the same. In my 401k Roth, I have 230,000.

[Jill Schlesinger]

Okay.

[Amy (Caller)]

And then I've got a rollover IRA from previous work at 265 and a half, Roth at 125. And then my husband has an IRA at 410 and a Roth at 195.

[Jill Schlesinger]

You got a lot of money saved, you guys. It's a good job, well done. How about house? What do you got?

[Amy (Caller)]

We own our home. No mortgage, and it's probably 640.

[Jill Schlesinger]

And you want to stay there?

[Amy (Caller)]

Yeah, I think so.

[Jill Schlesinger]

Okay. All right, fair enough. Do you have any other money that you have saved besides the retirement accounts? Maybe a brokerage account or high yield savings account? Do you have other stuff that's socked away?

[Amy (Caller)]

Yes, I have a brokerage account that has 490 in it.

[Jill Schlesinger]

Wow. You guys are good savers, man. Wow.

[Mark (Co-host/Financial Expert)]

Three. We're up to about 3 million now.

[Jill Schlesinger]

Yeah, I mean, that's a lot.

[Amy (Caller)]

Yes, that's about what it is. And then I've got a rental property.

[Jill Schlesinger]

Oh.

[Amy (Caller)]

That's worth, when I sell it, about 65,000. But it brings in about 700amonth.

[Jill Schlesinger]

Are you gonna sell it?

[Amy (Caller)]

I'm not in a rush. The 700 is kind of nice to get.

[Jill Schlesinger]

Yeah. I mean, why. I mean, is it hard to manage or not?

[Amy (Caller)]

No.

[Jill Schlesinger]

Okay. All right, Mark, you ready for what we got here? We got 3200 of hubbies, so Social Security and pension. We've got maybe four grand for her straight life and another 700. So we have about $8,000 pre tax before we even dip into any of these accounts. So let's say we need to generate $5,000 a month extra just to get some money out of these retirement accounts. What do you think, Mark?

[Mark (Co-host/Financial Expert)]

As you like to often say, you know, you're not going to make a bad decision here.

[Jill Schlesinger]

You're.

[Mark (Co-host/Financial Expert)]

You're fine.

[Jill Schlesinger]

You're in good shape. You're in real. You guys are in good shape, so.

[Mark (Co-host/Financial Expert)]

You can definitely retire.

[Jill Schlesinger]

But here's a question, Amy.

[Narrator/Advertiser]

So managing your money, has that fallen.

[Jill Schlesinger]

To you or your husband? Just in terms of the investing me, how do you feel about having that on your shoulders for this next period of your life?

[Amy (Caller)]

You know, I feel pretty good about it overall. I feel like I've.

[Jill Schlesinger]

You've done a good job. I mean, it's just a question of like, okay, so would it be, do you think, Would it make you feel better to be like, eh, four grand a month would be nice, and it's an automatic and it's nobody's problem except the company. Or would it be like, hey, you know what? I'd like that lump sum. I'll give you the advantage of the lump sum, is that you got these three kids, and if you did a straight life annuity, if you died three years from now, your kids don't get anything unless you said to me, like, oh my God, I hate managing money. It's the worst. I'm kind of leaning towards lump sum on this one, Mark.

[Mark (Co-host/Financial Expert)]

I mean, I get the argument. I love having, you know, basically almost $8,000 a month guaranteed. And then you only need to generate very little from their 3 million dollar.

[Jill Schlesinger]

Stockpile, which is like a no brainer by the way. Amy. Truly, that'll be a no brainer for you.

[Amy (Caller)]

But you have Social Security, hopefully.

[Jill Schlesinger]

Right, right, right.

[Mark (Co-host/Financial Expert)]

So we're not even factoring that in.

[Jill Schlesinger]

Right. And so that would even add more. So it's a question of this. Do I like the guarantee to make my life a little bit easier or do I really wanna make sure that I pass assets to my kids as much as possible or have it for myself? That's the $600,000 question. Your lump sum, that's really what I see it coming down to. Some people might be like, yeah, I don't care. I like that consistent income. That works for me. If that's you again, not gonna be bad. The kids are still gonna get money, you know, how's your health? How's your longevity? Like what? Give us a little bit of your gene pool.

[Amy (Caller)]

Good. My parents are in great shape at 82 and I don't have any health issues.

[Jill Schlesinger]

It's really a toss of the coin.

[Amy (Caller)]

I mean there's no cost of living increase with it.

[Jill Schlesinger]

Okay, so it's a straight life. Yeah, it's just four grand. I don't know. Like I said, I think having the 600 that you pop into your brokerage account, which is essentially now I have a million, a $1.1 million brokerage account, a one and a half million dollar 401k plus the 165, plus my husband's 600. Like you're going to have plenty of money. And the only difference in the lump sum is that you have to start getting some of this money out of the pre tax environment, you know, before you claim Social Security. But you'll do that anyway. This is very rare. Mark, do you want to make the decision for Amy or do you want her to make it?

[Mark (Co-host/Financial Expert)]

Well, I mean, I think a lot of this is just personal preference. You know, what they, what kind of legacy they want to leave for their kids, if that's important to them.

[Jill Schlesinger]

Is that important, Amy?

[Amy (Caller)]

Yeah, I think there will be money left over hopefully to give to them.

[Mark (Co-host/Financial Expert)]

Either way, they're getting money.

[Jill Schlesinger]

Yeah, the kids are getting money.

[Amy (Caller)]

Most of the people at the company do the lump sum.

[Jill Schlesinger]

Yeah. Because It. You know why? Because there's no cost of living adjustment, and it's like, it's a straight line. So, I mean, I'm leaning towards the lump sum. I think that if you were like, Amy alone living her life, and you're like, eh, give me the money, who cares? Then I would lean towards the monthly, the annuity. But I do think, you know, you got these three kids, got a lot going on. I think it's fine to give your notice in a year and a half. A year, Three days.

[Amy (Caller)]

Awesome. I love this news. This is great.

[Jill Schlesinger]

I think you're in really good shape. You guys have done a great job. I really, I think that. So make sure you got your. So. Okay. Before you get all excited, you should revisit your estate planning because you have now grown kids, right. And if something were to happen to both of you, those kids would get a lot of money at once. And you got to make sure those documents say what you want them to say. Okay? Yep.

[Amy (Caller)]

We just redid that all last year.

[Jill Schlesinger]

Oh, great. And other than that, I think you should go forth and give your notice and not worry about a thing. You're in very good shape, really, Amy, and congratulations, because it's really, it's so nice to talk to people who, you know, you make. You make good money. I don't know, how much money did your husband make when he was working?

[Amy (Caller)]

Like, 50,000.

[Jill Schlesinger]

So, like, here's a couple that made money, didn't go crazy, socked it away. This is the power of socking it away. Right, Amy? Just, like, put it away. Yep, you put it away, it grows. And this is like the magic of compounding. Exactly right. Make sure that you stay in touch with us. Let us know if anything else happens in the next 18 months. And if you have a different. Like, if you said, if I want to think through this again as I get closer, give us a holler. Okay, Fair enough.

[Amy (Caller)]

Okay, great.

[Jill Schlesinger]

Thank you.

[Narrator/Advertiser]

Excellent.

[Jill Schlesinger]

If you're like Amy, and you are looking into the future and you don't know what is it that you should be doing with a pension benefit, or you don't know whether or not you can really make a decision about this while. While your kids are still pretty young and not launched yet, get in touch with us. Go to jillonmoney.com, click the contact us button, write us a note, and of course, let us know if you'd like to come on the air live. We love, love to talk to you live. Don't forget to sign up for the free weekly newsletter Check out my book the Great Money Reset A lot of people resetting their lives and you may need some bold steps to turn the chaos of change into opportunity. You can subscribe to us on the Odyssey app or wherever you find your favorite podcast Podcast. Try to lift someone up. Change your work, Change your wealth. Change your life. Thank you for listening and we'll talk to you tomorrow.

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[Draymond Green]

It's Draymond Green. I'm back for my 14th NBA season and my podcast, the Draymond Green show is back too. This season I'm breaking down games, reacting to the biggest NBA stories and sitting down with teammates, rivals and culture shapers. And trust me, I'm not holding back on the court or on the mic. Two new episodes every week. New segments, big conversations, real basketball talk for the real hoop heads. Listen to and follow the Draymond Green show wherever you get your podcast. We're back. We're better. Let's get it.