Q&A: Lump sum vs. annuity

Dear Liz: You recently answered a question about taking a lump sum retirement versus an ongoing pension. You didn’t mention that the pension will stop when the employee dies (whether it’s after 40 years or 40 days) or when the spouse dies (same thing) if that was chosen. The children get nothing. What about taking the lump sum and putting it in a fixed indexed annuity? Yes, there is a yearly fee, but then the money can continue to the spouse, children and on and on and on.

Answer: See above. There’s more than a single “yearly fee” with these annuities, which are complicated insurance products that tend to have high costs and pay high commissions to the advisors who recommend them. If you’re considering this investment, you should run it past a fee-only financial planner first.

Many people dislike the idea that an annuity stops when they do, which is why insurers are often willing to sell you — for an additional fee — a guarantee that something will be leftover. There may be better, less expensive ways to leave a legacy, which a fee-only planner can discuss with you.

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