Size Up Annuity vs. Lump Sum Payout

Deciding whether or not to take a lump-sum distribution of your retirement plan when you're ready to leave work is a major financial decision. The option isn't available to all workers. But for those who have the choice, there are many details to take into account.

Consider your circumstances, and ask yourself these key questions:

  • How much risk am I willing to tolerate?
  • Would I feel comfortable personally managing my nest egg?
  • Am I confident in my company's strength and stability?
  • Do I need liquidity?
  • Is it important to me to leave a financial legacy to my loved ones?

Depending on how you answer, you may find an annuity preferable to a lump-sum distribution.

Another key consideration is taxes. Anytime you take a lump-sum distribution, there will be tax ramifications. Fortunately, a trustee-to-trustee rollover to an IRA allows you to defer taxes on the distribution. Of course, you'll have to follow IRA rules and age guidelines regarding withdrawals.

Ultimately, your decision has a lot to do with your projected income and expenses in retirement. If you'll have enough Social Security and other guaranteed income to cover your essential expenses, you may want the lump sum available to pay for unexpected or larger expenses. If there's a significant gap between your expected income and expenses, then an annuity may help you sleep at night.

Even if you're typically a financial do-it-yourselfer, get a second opinion from a fee-based financial planner or a tax adviser before making a decision that can't be undone. Want more information? Take a look at the Individual Retirement Accounts offered by HUECU and use our quick and easy Traditional vs. Roth IRA Financial Calculator to see what's best for you. We also offer a variety of IRA Term Share Certificates as well as an IRA Money Market Savings Account. Stop by any of our branch locations, call us at (617) 495-4460 or email us for more information.


Return Home