Lump-Sum, Not So 'Ho-Hum'

Many companies offer a lump-sum retirement withdrawal option instead of the annuity option where a fixed amount is sent to you on a monthly basis.

The issue actually goes a little deeper than a check-box between two choices.  Considering that the average 62 year old couple has a 30-year joint life expectancy, your nest egg needs to last longer than most average couples can fathom.  (Putting it another way, the average remaining person in this scenario will live to be 92.)  Also consider that inflation will have likely increased by about 250% in those 30 years. 

A fixed income sounds pretty good IF everything stays exactly like it was on your retirement date.  But your cost of living more than doubling while your income remains fixed, is a painful reality for the remaining spouse to bare.  That's $7.50/gallon for gas!  That's about $25,000 per year for the average family's medical expenses.  This, in a nutshell, is the reason for financial planning - almost nobody considers the long-term risks that threaten to pull the rug right out from under us.

87% of the time it is the female in the couple that is left to deal with this realization.  All the while, it was the intention of the newly-retired couple to have the security of a steady income for their retirement years.  It was more than they could imagine when they first retired and it ends up seriously depleting the remaining spouse's lifestyle after 30 years.

It is such a sneaky oversight to the average retiree because it is one that does not become a realization until you are well beyond your peak earning years.

However, if you choose to 'wing it' in retirement without a professional advisor and you have not had much professional council and training, the most 'comfortable' decision you will be aware of will be to take the annuity option.  Tisk, tisk...

The Lump-Sum Option

This will most likely be the option your financial advisor will advise you to go after conducting a sufficient financial overview and making sure you are not going to transact large expenses that will disrupt your retirement lifestyle (i.e. starting a new business, making large purchases, paying off certain debts...).

The lump-sum will be rolled into your own IRA that will allow you to continue to defer taxes on the growth.  This is a familiar function for your investment advisor and they will be able to guide you throughout the process.  Click here to refer to our article for an overview of that process.

The End Around

Some advisors try to get a retiree to defer their employer's fixed income annuity option to instead opt into their own annuity plan.  This will take the form of an insurance product.  While this may be an option for a small portion of your lump sum, the question really gets back to "How much of your nest egg can you afford to remain 'fixed' if you live to be 92+?"  

Feel free to call or contact any one of our professional investment advisors to discuss your retirement distribution options.

Securities Offered Through Dominion Investor Services, Inc. Member FINRA and SIPC.