Lump-sum vs Annuity: How to Maximize Your Pension Benefit in 2023

Should you take the lump sum or the annuity option on your pension?

This can be a difficult question to answer if you don’t know the right questions to ask yourself.

In this video, we walk you through key points to consider so that you can make the best possible decision for your future.

Lump Sum vs Annuity 


Full transcript:


Alex Okugawa & Matt Calcagno

Alex Okugawa 0:00

Should you take the lump sum or the annuity option in your pension? This can be a difficult question to answer. But in this video, we’re going to walk you through the key points to consider so that you can make the best possible decision for your future. Hey there, it’s Alex and Matt with One Degree Advisors, and we help you gain confidence in your retirement. So, Matt, how should folks make this decision? Right? On one hand, folks will often have the option to take a lump sum. Now, that doesn’t mean you have to take the lump sum and you get taxed on it all at one time, right? You can take that money, and typically roll it over into an IRA and then do what you want with it from there. Or should folks take the lifetime income annuity option?

Matthew Calcagno 0:42
Yeah, for those of you that are watching here, what we’re going to do today is basically walk through some of the key considerations that we go through with our clients. Because at the end of the day, we want to make sure that this decision puts the most amount of money in your pocket over your lifetime.

Alex Okugawa 0:56
Yeah, so let’s talk about two reasons why someone might consider the lump sum option, again, taking that lump sum and maybe rolling it over into an IRA.

Matthew Calcagno 1:06
Yeah, number one is for many people, flexibility in retirement is very important. If you think in terms of social security, you can’t call the Social Security office and say, Hey, I need actually an extra $15,000. For my home repair, this amount is fixed over your lifetime with an annuity. Number two, if your pension has no cost of living adjustment, you might want to consider a lump sum. Why? Because over time, we know that inflation eats away at our money. And if you’re getting $4,000 A month today, look ahead 510, even 25 years into the future, and that just might not meet your expenses the same way it did today,

Alex Okugawa 1:44
no course you’re assuming rates of return on the investment of what you can earn. If you roll over, let’s say that lump sum into an IRA. But often is the case that by doing so, especially if your pension doesn’t have a cost of living adjustment attached to it moving in into a lump sum and an IRA and creating your own income stream, over time can hopefully help you create your own cost of living adjustments and create flexibility where you can increase your income over time. So Matt, let’s talk about two key considerations of why folks may take the lifetime annuity income option.

Matthew Calcagno 2:19
Yeah, number one is going to be a very strong cost of living adjustment. And I’ll pull this up right here. Now, there are a lot of numbers here on this spreadsheet. But the main takeaway here is based on their monthly income and based on the cost of living adjustment that was afforded to them. It made a lot of sense for them to take this lifetime annuity option.

Alex Okugawa 2:39
You will often see this again with like teachers’ government pensions were that pension, where that lifetime annuity income is so strong that the rate of return that you need to earn that lump sum just doesn’t even make any sense. Right. So but you have to do the analysis to get the right and that’s part of our job is to do that. And now,

Matthew Calcagno 2:57
conversely, if there was no Cola, you could see I’ll pull this over here. It just didn’t, it just makes more sense to invest that money because the color was so poor. Yep. So the second reason here we have for taking the annuity option is you desire stability over-optimization. And this, this really comes up a lot. And the reality is a lot of people. It’s not a black-and-white decision. But if it helps you sleep better at night, having that stable amount every single month coming, having that paycheck, hit your account every single month makes a lot of sense for a lot of people. And Alex, I know you’ve written really detailed blog posts on this that goes in greater detail, and also includes that spreadsheet, so people can click on the link in the description below and they’ll find that

Alex Okugawa 3:40
Yep, for those that want to run this really basic pension analysis for themselves. The link to my blog post also includes that spreadsheet, but along the same lines, you know, thinking about retirement looking at my lump sum, or the lifetime income annuity option. A lot of retirees or pre-retirees are thinking about their mortgage right, should I pre-pay my mortgage to get it paid off before heading into retirement? Or should I continue to keep my low-rate mortgage it’s not always a black-and-white solution? So we recently posted video folks in watch here. Once again, this is Alex Ogawa with One Degree Advisors, and if you’d like to learn how we can help you with your retirement, visit our website at

Transcribed by

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