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Should You Take Pension Payments or a Lump Sum? A How-To Guide

Your employer doesn’t want to be in the pension business. It’s too expensive. Low interest rates force employers to beef up their pension contributions or invest in riskier assets to meet their plans’ assumed rates of returns.

For this reason, employers offer lump-sum buyouts. The company wants you to take the buyout so they can exit the pension business and save money. You can take the pension lump sum and roll it tax-free into an IRA.

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But how do you evaluate a one-time lump-sum offer against the possibility of lifetime payments that a pension offers?

Should you take it or leave it? Here is one approach I use when evaluating a client’s pension offer:

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