Reaction: My old job had a pension and they offered me to cash out for $24k or get $100 per month for life – which should I choose?

It’s not a particularly common thing to be entitled to a pension if you work for a private-sector employer these days. But some companies do offer them. Or, you may have had a previous job where you were entitled to a pension you haven’t cashed in on yet.

In this Reddit post, we have someone who’s eligible for a small pension — most likely because they only worked for their employer for a limited period of time (though it’s hard to know). Their options for their pension are to cash it out immediately and get a $24,000 payout, or collect $100 a month for the rest of their life.

It’s a tough decision for sure. But here’s what I’d suggest the poster think about when making their call.

What could $24,000 at once do for you?

Because the poster here is only 44 years old, they could end up losing out financially by taking a lump sum payout on their pension. That’s because the poster’s break-even point based on the details they share is 20 years.

What do I mean by that? If they’re eligible for $100 a month, it will take them 20 years to collect $24,000 in pension income. That puts them at age 64.

If we go by average life expectancies, the poster is likely to live beyond age 64. So by accepting the up-front payment in full, they might lose out on income down the line.

That said, if the $24,000 payout allows them to address a major financial goal, then it could be worth taking the money early.

Let’s say the poster really wants to get into a home but needs funds to swing a down payment. A $24,000 lump sum could do the trick. From there, the poster may be able to stop renting and start building equity in a place of their own, which could help them grow their net worth over time and provide a degree of stability.

The poster may also be looking to start a business. If they take a $24,000 payout and use it as seed money, it could lead to a venture that yields nice profits for many years.

The poster could even take the $24,000 up front and invest it. If they let it sit in an S&P 500 ETF over 20 years, even at a modest 8% return (which is a few notches below the market’s average), they’d be looking at growing it into about $112,000.

A tough choice to make

Because the poster here has a pretty young break-even age, they’ll need to consider the bigger picture when deciding what to do. I would recommend that they sit down with a financial advisor and see what a professional suggests.

Frankly, I’m not a financial advisor, and there are nuances to these types of situations that a professional is in a better position to address. And also, I’m only seeing a snapshot of the poster’s finances — not their complete picture.

I don’t know what the poster’s retirement savings look like, whether they have debt, or what their plans are for the future. If I found out that the poster had a $24,000 credit card balance, for example, that would probably inspire me to say “take the money now and pay it off.”

So any time there’s a big financial conundrum like this, it’s wise to call in a professional who can look at all of the details and help out.