Should I Take My Pension Buyout or Monthly Checks?

Summary

Ramsey Everyday Millionaires: Episode Summary – "Should I Take My Pension Buyout or Monthly Checks?"

Release Date: July 30, 2025
Hosts: Dave Ramsey, George Kamel, and Ramsey Network Team

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1. Introduction

In this episode of Ramsey Everyday Millionaires, host Dave Ramsey and co-host George Kamel delve into a pertinent financial dilemma faced by many nearing retirement: choosing between a pension buyout (lump sum) or continuing with monthly pension checks. The discussion is sparked by a live caller, Mike, who seeks professional guidance on making this critical decision.

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2. Caller’s Pension Dilemma

At the heart of the episode is Mike’s predicament. Mike shares his situation early in the show:

Mike (00:21): "My company offers pension of safe $3200 a month. And the survivorship from my wife would be $2400 a month. No question. She outlives me. I'm 58. I'm desperate."

Mike is contemplating whether to accept a lump sum payout of half a million dollars or continue with his guaranteed monthly pension payments. His concern revolves around maximizing financial security for both himself and his wife in the long run.

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3. Dave Ramsey's Advice on Choosing Lump Sum vs. Monthly Payments

Dave Ramsey addresses Mike’s concerns with a strategic approach:

Dave Ramsey (01:10): "Take the lump sum, roll it to an IRA in good growth stock mutual funds. Now, let me tell you, there's two reasons why. And you'll find this out as you crunch the numbers."

Ramsey outlines two primary reasons to opt for the lump sum:

1. Higher Rate of Return: Pension calculations are typically conservative, often based on a 7% rate of return to ensure sustainability. In contrast, investing the lump sum in mutual funds can yield an average of 11-12%, leveraging the historical performance of the stock market.

2. Legacy Benefits: With a lump sum, the remaining funds after both spouses pass away can be inherited by heirs, unlike pensions which cease upon the death of the pensioner.

Dave Ramsey (02:21): "So you make more while you're alive and more, a lot more when you're dead. So you take it."

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4. Analysis and Calculations by George Kamel

George Kamel supplements Ramsey’s advice with practical calculations to illustrate the financial benefits of taking the lump sum:

George Kamel (04:06): "I crunched the numbers just for fun and I guess generously that he's going to live to at least 85. And you're right in that the lump sum wins in every case here."

Kamel compares the annual income from the monthly pension ($38,400 at a 10% return) against the $24,000 survivorship pension, demonstrating a significant financial advantage when opting for the lump sum. He emphasizes that even with an 8% return, the lump sum option substantially benefits Mike and his wife.

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5. Average Life Expectancy Considerations

The discussion also touches on life expectancy, which plays a crucial role in deciding between a lump sum and monthly pensions.

Dave Ramsey (06:07): "average death age is 76. Yes, it is, darling. It's 76 for males now and 78 for females. Now, it's not 85, but when you live to 60, average death age is 90."

Ramsey clarifies that life expectancy statistics may be conservative, especially for individuals in good health and those who are 60 or older. He suggests that with advancements in healthcare and personal well-being, many can anticipate living well into their 80s or beyond, making the lump sum option even more advantageous.

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6. Humor and Light-hearted Banter Among Hosts

Throughout the episode, Ramsey and Kamel infuse humor into the discussion to keep the conversation engaging:

Dave Ramsey (06:30): "I may still be doing the show. I'm just saying I could lose my teeth like somebody did on radio."

George Kamel (07:08): "Now, that's a plan only Rachel Cruz could dream up."

Their lighthearted exchanges provide a relatable and entertaining break from the technical financial analysis, making the episode both informative and enjoyable.

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7. Conclusion and Recommendations

In wrapping up, Dave Ramsey reiterates the benefits of choosing the lump sum option:

Dave Ramsey (04:24): "Taking the lump sum means you make more while you're alive and leave more behind for your heirs."

He advises listeners in similar situations to consult with a SmartVestor Pro, recommending resources available at ramseysolutions.com, ensuring that individuals receive personalized and professional financial advice tailored to their unique circumstances.

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Key Takeaways:

• Higher Financial Returns: Investing a lump sum can potentially yield higher returns compared to the conservative estimates used in pension calculations.

• Legacy Planning: A lump sum allows for the preservation of wealth beyond the lifetimes of the pensioners, benefiting heirs.

• Consult Professionals: Engaging with financial experts like SmartVestor Pros is crucial for making informed and personalized decisions.

This episode serves as a valuable guide for individuals approaching retirement, weighing the pros and cons of pension buyouts versus traditional monthly payments, ultimately empowering listeners to make informed financial choices.

Transcript

[Dave Ramsey]

Foreign.

[George Kamel]

This episode is brought to you by SmartVestor. Connect with an investing pro near you.

[Dave Ramsey]

At RamseySolutions.com SmartVestor Mike's in Charleston, South Carolina. Hey, Mike. What's up?

[Mike]

Hey, how you doing, Dave? Thanks for taking my call.

[Dave Ramsey]

Sure. How can we help?

[Mike]

I kind of got a pension question.

[Dave Ramsey]

Okay.

[Mike]

My company offers pension of safe $3200 a month. And the survivorship from my wife would be $2400 a month. No question. She outlives me. I'm 58. I'm desperate.

[Dave Ramsey]

Is she plotting your death or do we know?

[Mike]

No, but you know what? He knows. She knows she's going to outlive me.

[Dave Ramsey]

Okay. She said, Sharon keeps telling me this, and I just ask her why she's so sure, but that's what bothers me. So I'm just saying. All right. Anyway.

[George Kamel]

Sleep with one eye open.

[Dave Ramsey]

So. Okay, so 3220400 or lump sum of how much?

[Mike]

Half a million.

[Dave Ramsey]

Lump sum?

[Mike]

Yep.

[Dave Ramsey]

Take the lump sum, roll it to an IRA in good growth stock mutual funds. Now, let me tell you, there's two reasons why. And you'll find this out as you crunch the numbers. And I'm going to ask you to go do a formal answer with a good financial person. I'm going to teach you how to do that. Okay? But here's the basics. Your pension calculations, by law, by regulation, have to be conservative to keep the pension from going broke. And by law, they're typically right now right around 7% rate of return. And so they calculated what your 3200 is worth based on a 7% rate of return. If you're in good mutual funds, you can earn 11 or 12 on average. That's what the stock market's average since it begins. 11.8. Okay. And so, A, you would make more for yourself today if your money was invested at a higher rate than 7%. B, when both of you die, all jokes aside, this money dies with you. If both of you die and there's a half a million dollars in a mutual fund, it doesn't die with you. It goes to your heirs.

[Mike]

Yeah.

[Dave Ramsey]

So you make more while you're alive and more, a lot more when you're dead. So you take it. But that's. And those are going to be the reasons. So if you made 10% on $500,000, that would be $50,000 a year. You follow me?

[Mike]

Yep. Yep.

[Dave Ramsey]

That's about 4200amonth without touching the 500.

[Mike]

Okay.

[Dave Ramsey]

That's better than 3400 better than 2400, by the way. That survives both of you.

[Mike]

Okay, I can roll that into my 401. No, no, you can't be a separate.

[Dave Ramsey]

No, I wouldn't do that. I would roll it into an ira. There's no taxes on it if you do that. And it can sit there and grow tax free now rather than take a three minute answer on a podcast. But that's how it works. That's the concept. It's a pretty simple concept. More while you're alive, more when you die if you take the lump sum. And almost 99% of the time works out that way because of the way the pension is required to do the calculation. By law, it's an unfair thing. They can't really compete against this. And that's why there's very few pensions left anymore, because they suck. And so Anyway, go to ramseysolutions.com and click on Smartvestor Pros. There'll be several in your area. I know a couple of them in Charleston, by the way, and they've been with me for years. They don't work for me, but I recommend them as people to sit down with and talk to about this and let them unpack for you the two things we just talked about, that you'll make more with it invested rolled over into an IRA and good mutual funds. And how old are you guys, by the way?

[Mike]

Or 58. I'd like to retire at 62.

[Dave Ramsey]

Okay, well, you got, you got to be 59 and a half for the start, pulling on this money. And you know, so you got nothing till 59 and a half because you got to leave it in there. Okay. Rolling it to a. Without penalty anyway. Rolling it into an ira. But I would roll it to an IRA and get with our smartvestor pros in the area and let them sit down. A good thing about a Smartvestor Pro, Mike, is they're going to have the heart of a teacher and you're going to have them talk to you like I just did. But they're going to give you a lot more time and care than I just did.

[George Kamel]

Yeah. And I crunched the numbers just for fun and I guess generously that he's going to live to at least 85. And you're right in that the lump sum wins in every case here. I mean, you look at a 10% return, he would still have the same withdrawal over that time. Same. You know that he's going to withdraw that million bucks over that 27 years and still have 1.4 million left over to hand over to a.

[Dave Ramsey]

So if he only took the 3200. Is the number 38?

[George Kamel]

Yeah, 38 grand a year.

[Dave Ramsey]

Okay. Instead of taking all of the. At what rate of return?

[George Kamel]

That's a 10%.

[Dave Ramsey]

A 10%.

[George Kamel]

And even at 8%, he still has an extra 700 grand sitting that account if he died at 85. So.

[Dave Ramsey]

So if you just. If you take off your amount. Not the survivorship of the wife, but the 3200 is what George ran.

[George Kamel]

Yeah.

[Dave Ramsey]

That's an interesting calculation. So apples to apples on the monthly, only we don't have to reduce it to survive the wife.

[George Kamel]

Yeah.

[Dave Ramsey]

Okay.

[George Kamel]

And.

[Dave Ramsey]

And then let the. Let them. Let the money grow and it'll grow to 1.2.

[George Kamel]

Yeah, 1.4 at 10%. About 700,000. At 8%. We're going to go.

[Dave Ramsey]

And how's it going to be for that to happen?

[George Kamel]

85. So just live to 85 if you can. That'd be great.

[Dave Ramsey]

Yeah, that'll really help us work out our math here.

[George Kamel]

Really helps our math. And I do hope he lives even longer than that.

[Dave Ramsey]

Yeah, well, I don't know what his wife's got planned, but that's barring any other situation. And by the way, folks, here's the thing. You and George, you know, average death age is 76. Yes, it is, darling. It's 76 for males now and 78 for females. Now, it's not 85, but when you live to 60, average death age is 90. Okay, so. And he's almost 60. So the average death age includes infant mortality, teenage car wrecks, and whatever. Right, so. But if you statistically want to run actual data on somebody that's my age, 65 years old, I'm healthy. The high probability I make it to 90. In today's world, 76 is not the norm.

[George Kamel]

And based on Dave's sheer willpower, I think we might see 100.

[Dave Ramsey]

I may still be doing the show. I'm just saying I could lose my teeth like somebody did on radio.

[George Kamel]

Rachel has made that clear. Rachel said she might give you a fake Ramsey show. Like a little mock show for you.

[Dave Ramsey]

And make me think I'm not on air.

[George Kamel]

And make you think you're on air. Once you're senile in your 90s, we'll.

[Dave Ramsey]

Just go, Gen 2 has a plan.

[George Kamel]

Exactly.

[Dave Ramsey]

So just put the old man out to pasture and he doesn't even know he's there.

[George Kamel]

You'll never know if it made it to air or not. It might just be for funsies.

[Dave Ramsey]

If the third caller's name is still Bessie, we're talking to the cow.

[George Kamel]

Okay, producer James is gonna schedule a lot of great calls for you, for you to have a good time. Nothing to do with this, not change as I do.

[Dave Ramsey]

Leave me out of this.

[George Kamel]

Now, that's a plan only Rachel Cruz could dream up.