Personal Finance

My husband has a pension he can either cash out for $2.9 million or get $15,000 monthly payments - what should we choose?

David Beren

Published: November 26, 2024 2:30 pm

24/7 Insights

• This Redditor has a husband with a large pension plan. 
• The big decision is whether to take annual payments or a lump sum. 
• There is also a question about retiring earlier than planned. 
• Also: Are You On Track to Retire? Take This Quiz and Find Out (Sponsored) 

In the world of r/ChubbyFIRE on Reddit, someone always wants or hopes to hit a specific number, so they can call it quits on working every day. This is the catalyst of the Financial Independence Retire Early movement in the hopes of actually enjoying life. 

In fact, this is the case with our Redditor, who posted about transitioning to life as a stay-at-home mom after a “long career.” At 51 and with a 52-year-old husband, this couple hopes to be entirely out of the workforce by 60, especially knowing the husband has a giant pension payment coming. 

What I enjoyed about this read is that while the post is more related to personal finance than the FIRE movement, it’s still a good lesson for those deciding between a lump sum or monthly windfall payments. 

The Scenario 

Looking at this Redditor’s post, we get a pretty good glance at their full scenario. We know the couple are aged 52 and 51, with the wife (52) now settled in as a stay-at-home mom and the husband, who plans to retire in 9 years at 60. Only one child between the couple will be a college graduate by the time the husband retires at 60, and all college expenses are covered by a 529. 

Currently, their retirement portfolio has between $4.8 and $5 million, without including any home equity. The crux of the post comes with this next fact: the husband has a pension, which he can take as either a lump sum payment of $2.9 million or $15,600 with 100% spousal survivor benefits. As part of the husband’s pension, they also receive retiree healthcare, so there are no healthcare expenses between now and when they qualify for Medicare at 65. 

Last but not least, the family will earn approximately $65,000 per year with Social Security starting at age 67. So, the Redditor’s question in this post is that while she prefers the husband take the lump sum, she isn’t sure it’s the right move. 

The Recommendation 

What may appear on the surface to be a big issue for this Redditor with the pension isn’t all that big of a concern in the real world. I’m not a financial advisor, but I understand the family only needs around $120,000 to live in retirement, which means either solution works for them regarding how to take the pension. I say this because the money doesn’t significantly affect their cost of living. Even without the pension, the family is in good shape to live well with their investments. 

The real question is whether they are planning to retire early. The wife points out that if the husband were to retire at 55, his lump sum would be $1.87 million or $9,315 monthly. However, the family has thought ahead, and if they stick with their course and take the lump sum at 60, they know they can roll it over into an IRA and avoid taxes. Of course, they should discuss this with a certified financial planner. 

However, if you can take the lump sum without worrying about a significant tax burden, my take is to do precisely that. There’s a better chance you will make the $2 million grow through investments than just enjoying the monthly payments, which don’t have any cost of living increase. 

The Takeaway

Ultimately, the scenario concerns whether the monthly payments would be enough to cover all of their expenses. With $15,000 arriving once every month over a year, you end up with $180,000, more than enough to cover the family’s expenses without touching their portfolio. 

However, the real question is whether or not they want to see this money grow. If so, investing $7 million will earn more than $280,000 annually with a 4% withdrawal rate. This gives them much more flexibility in living, traveling, playing, and enjoying life. 

For this reason alone, the best scenario is to take the lump sum and invest it so it earns more. Let the husband work until he’s 60, the child finish college, and then enjoy the golden years.