Liz Weston

Dear Liz: You recently answered a question about whether to take a lump sum or an annuity payout from a pension. I think you need to be more cautious about making a blanket statement about the payout being the only viable option. There are other reasons for taking the lump sum, such as the pension fund’s stability. My mother’s friend lost her entire pension when Bethlehem Steel went bankrupt. Also, I like the idea of being able to access the lump sum in the case of a catastrophic need (call me a control freak!).

Answer: You certainly can access more of your money with a lump sum, but that’s a double-edged sword. You could withdraw too much too fast and run out of money. You could lose money to bad markets, bad investments, bad decisions and fraud. Even if you’re making good financial decisions now, that may not always be the case as our cognitive abilities tend to decline with age.

The column you’re referencing didn’t say that an annuity is the only viable option, however. In that particular case, the annuity option came with retiree health insurance while the lump sum option did not. It would be pretty hard to top guaranteed income for life plus medical benefits, but that doesn’t mean it’s impossible.

A lump sum could be a better option if the pension is particularly generous and the pension fund isn’t solvent. Your mother’s friend’s pension, for example, was covered by the Pension Benefit Guaranty Corp., so she didn’t lose the whole thing when Bethlehem Steel went under. Workers there lost part of what was promised them because their pensions were larger than the amount covered by the PBGC.