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Friday, July 27, 2012

A Retirement Choice With No Right Answer


Many workers still have pension plans, though that number will dwindle as companies increasingly seek to reduce their pension obligations. And some companies may well follow the lead of General Motors, which offered its retirees a choice between a lump sum payout and continuing to receive a monthly check from an annuity.

Paul Sullivan, in his Wealth Matters column this week, said that his first reaction would be to take the lump sum. But the answer for the retirees may not be that simple, since they worry about managing such a big lump sum well enough to last their lifetimes. Yet, if they die at a relatively young age, they may have given up the chance to leave a large amount of money to their heirs.

Paul spoke to experts in retirement and behavioral economics who offered a middle ground: using a portion of the lump sum to buy an annuity and leaving the rest in reserve for unexpected costs.

Of course, these days, anyone with a pension at all is considered among the lucky ones. Are you among them? If so, what would you choose if your company followed G.M.'s lead, and why? Or, if you are a G.M. retiree, what did you do?