Should you take your retirement pension as a lump sum payout? 7 important points to consider!

What is a defined benefit plan? Simply put, it’s a pension plan where the employer guarantees a monthly payment to the retirees under certain conditions and rules.

The payment is guaranteed, regardless of how long the retiree (and spouse) live, regardless of market conditions. Often, these plans have lump sum options meaning the retiree has the option to take the payment as one large lump sum instead of monthly payments. This lump-sum is a form of pension payout that calculates the present value of future payments at a prescribed interest rate.

Think of it like a mortgage loan: The lump-sum is the value of the mortgage, the pension payments are the equivalent of the mortgage payments, the term of the loan is the life expectancy of the retiree, and the interest rate is the rate approved by the governing body. A $5,000 monthly pension, depending on the age of the retiree, might have a lump-sum value of about $990,000.

So is it better to take this money and run or take the monthly payments?

In this video, we address 7 points to consider when trying to make this decision. It's important that when planning for this major life transition, you have a clear understanding of what your options are.

Another useful video is:

Surprisingly, research shows that most people spend more time planning for their two week vacation then for their retirement.Vacation lasts a week - maybe 2 at the most but retirement could last 20 years or more and so proper planning is critical.

We encourage you to speak with a retirement planning expert.

Whether you are 10, 5, 1 year away or even already retired, it's important to meet with a professional to ensure that there aren't any gaps in your plan.

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If you'd like to discuss your personal upcoming or current retirement, contact our office in order to set a meeting.

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[chrisspurrell]

Here in Ontario, municipal penions (OMERS) as of Jan. 2022 there is no cost of living guarantee. As of that date it is "shared risk" meaning if the plan in the future is healthy you will most likely get the cost of living raise. If the pension is not healthy or has a negative return one year, you lose money that year.

I am looking at retiring early at 55 in 2 years and taking the commutted value. I can only take the lump sum at 55 and no later. The overall stock market, 85% of the time, out performs the OMERS returns...

[christopherhennessey]

I am receiving a pension.The calculation was 1.6% x avg of 5 highest years x yrs of service. An annual 2.9 % COLA comes with my pension.

[pacman]

commuted value, can part of it be moved to a spousal RRSP in Manitoba and is the remaining amount taxed at top federal and provincial bracket?

[enricoverendia]

HI !IAM A SS PENSIONER DO I QUALIFY FOR LUMP SUM PAYMENT?