Should You Take a Lump Sum?

摘要

Retiring was easy when most workers were covered by traditional pensions: You cleaned off your desk, bade farewell to colleagues, and waited for your monthly check to roll in. But as more companies have shifted to 401(k) plans and portable pensions called cash-balance plans, retiring workers face some difficult choices. Should they empty the pot, roll the contents into an individual retirement account, and try to manage their way to a reasonable rate of return? Or should they convert the money into an annuity―either through their employer or an outside insurer―that guarantees a monthly payment for as long as they live? Pension experts believe the bear market, which has eviscerated many workers' portfolios, may compel more retirees to choose the security blanket an annuity provides. Most Americans aren't very good at budgeting or making investment decisions, says Norman Stein, a pension expert and law professor at the University of Alabama. "The consequences of mismanaging your money can be disastrous," he adds. In exchange for that security, you give up control. By putting your savings in an individual retirement account, you determine how the money is invested, and you can withdraw as your needs dictate. In the meantime, your investments continue to grow. You'll have to take minimum annual distributions once you turn 70(1/2), but new tax rules have sharply reduced the withdrawal amount.