Pros & Cons: Pension or Lump Sum Payout?

The 2020 pandemic has resulted in economic strain for many American corporations — even long-established entities. Therefore, it’s important for would-be pensioners to consider their employer’s long-term financial stability in light of the country’s circumstances.

Note that while the federal Pension Benefit Guaranty Corporation (PBGC) may offer relief when an employer becomes insolvent, this guarantee works much like filing for bankruptcy. In other words, it may pay out only a certain percentage of promised benefits.1

The following hypothetical example gives you a snapshot of what you could expect in terms of risks and benefits when deciding between pension income and a lump-sum payout. In this scenario, a single pensioner qualifies for $1,625 a month for life, or a one-time, lump-sum payment of $300,000.

Pension Income

Pension income has been a less attractive option in recent years due to sustained low interest rates, which yield a lower pension benefit. Also consider that few pensions offer a cost-of-living adjustment. While some pensions offer spousal benefits, typically there is no death benefit for heirs. Also note that most pensions are funded with pre-tax dollars, so payments are usually taxable as ordinary income.

Age 65, Annual Pension Income: $19,500 ($1,625 per month)2

Total pension payout
Death at age 80$292,500
Death at age 90$487,500
  • Pros: Guaranteed income for life
  • Cons: Risk of guarantor financial instability (and reduced benefit), no hedge against rising inflation, no death benefit for heirs

Lump Sum, Invested

When offered a lump-sum option, the amount is generally lower than the expected total of lifelong benefits. However, a lump offers the opportunity to invest for a higher return over the long haul. Note that if the retiree doesn’t direct the lump-sum distribution into an IRA or other qualified account, he’ll owe taxes on the full amount in the year received.

Age 65, Lump Sum Distribution: $300,000 invested for $19,500 annual withdrawals ($1,625 per month)3

 1% average annual return4% average annual return6.5% average annual return
Death at 80Total payout: $292,500 Death benefit: $31,262Total payout: $292,500 Death benefit: $134,205Total payout: $292,500 Death benefit: $269,349
Death at 90Total payout: $323,880 Run out of money by age 82Total payout: $445,427 Run out of money by age 88Total payout: $487,500 Death benefit: $225,360
  • Pros: Invest for growth opportunity, control and flexibility, take distributions as needed, potential death benefit for heirs
  • Cons: Market risk/risk of loss, variable income, risk of running out of money

As you can see in this hypothetical example, a conservative rate of return could work as long as the investor dies by age 82. If he lives beyond that age, it would be necessary to achieve a higher sustainable rate of return. In today’s market, it can be tricky trying to find a high-yielding income vehicle without taking on too much risk.

Whether it’s best to take a lump sum or take pension income depends on your personal circumstances, and you should speak with a qualified professional to help you make that decision.

This is a hypothetical example provided for illustrative purposes only; it does not represent a real life scenario, and should not be construed as advice designed to meet the particular needs of an individual’s situation. It does not illustrate any specific investment product and is not an indication of past or

future results.

Sarah O’Brien. CNBC. June 11, 2020. “Pandemic creates pension plan tension: Take the lump sum or trust lifetime payments.” Accessed Aug. 10, 2020.

Rob Williams. June 28, 2019. “Lump Sum vs. Annuity.” Accessed Aug. 10, 2020. Aug. 10, 2020. “Savings Distribution Calculator.” Accessed Aug. 10, 2020.

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In today’s market, it can be tricky trying to find a high-yielding income vehicle without taking on too much risk.

Communications such as this are not impartial and are provided in connection with advertising and marketing of the financial services offered by Guardian Capital Management, LLC. Guardian Capital Management, LLC is not an attorney or a tax professional and the information contained herein should not be considered tax or accounting advice, legal or regulatory advice. 

The information provided herein is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. Accordingly, it should not be construed by any consumer and/or prospective client as solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation. Guardian Capital Management, LLC offers investment advice through Belpointe Asset Management, LLC, 125 Greenwich Avenue, Greenwich, CT 06830 (“Belpointe”). Belpointe is an investment adviser registered with the Securities and Exchange Commission (“SEC”). Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services Belpointe offers, or that or its personnel possess a particular level of skill, expertise or training. Insurance products are offered through Guardian Resources. Important information and disclosures related to Belpointe are available at Additional information pertaining to Guardian Capital Management, LLC and/or Belpointe’s registration status, its business operations, services and fees and its current written disclosure statement is available on the SEC’s Investment Adviser public website at

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