<beliavsky[at]aol.com> wrote in message
news:1120052737.883994.239760[at]o13g2000cwo.googlegroups.com...
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Problems with taking the payouts are as follows:

1) The payout is fixed. Inflation eats it up. The day you retire, your
pension begins to shrink vis a vis its buying power. The older you live, the
less you'll have each month over time.
2) If you die young, you have nothing to leave your heirs.
3) The company could belly up, leaving you with nothing or not much.
4) If the employee decides to go to work elsewhere, he/she may not want the
pension income because of what it does to his/her tax bracket. It might be
preferable to have the lump sum in a qualified account.
5) Nothing keeps the employee from turning the lump sum over to a money
manager, who will most likely get them more money each month than the
pension payment would be. (Most pension accounts are managed very
conservatively because of the risk to the COMPANY -- not the retiree --
should their investments not perform.)

You're offered only one reason for taking the payments, and I'd argue that
#1 in my list above could very will be more destructive, over time, than a
bad investment or two.

Mike



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beliavsky[at]aol.com wrote:
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Isn't how well the pension fund manager performs irrelevent? I don't
think the company increases your payout if the performance is better.
I would say always take the lump, assuming the calculated lump sum
amount is reasonable. You have better control of the taxes, are less
dependent on the strength of your former company (since you likely will
be using them for health benefits as well) and to the extent you need
guaranteed income, you can purchase an immediate annuity.

There is a WSJ article saying that 95% of employees take a pension as a
lump sum rather than as monthly payments when offered the choice. This
surprises me. Since most people will not manage their money as well as
pension fund manager, and since a monthly pension reduces the risk of
running out of money, I think employees should take the monthly pension
unless they can prove it is inferior. If the employer is in financial
trouble (as the airlines are, for example), taking the lump sum may be
wise.

Lump-Sum Pensions Make
Retirement Even Riskier
By ELLEN E. SCHULTZ
Staff Reporter of THE WALL STREET JOURNAL
June 29, 2005; Page B3
"Over the past two decades, employers have increasingly offered
retirees the choice of either receiving their pension the old-fashioned
way -- as a monthly check in retirement -- or taking a one-time chunk
of cash. About half of workers with pensions now have the one-time
option, and 95% of them choose it."