Woman, 62, Took A $700,000 Lump Sum Instead Of Her Pension — Her Coworkers Say She Made 'The Biggest Mistake Of Her Career'

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A woman, 62, retired this year after 30 years with the same employer and chose a $700,000 lump-sum buyout instead of a monthly pension for life. Several former coworkers have told her she made "the biggest mistake of her career," warning she'll run out of money without the guaranteed check.

Whether that's true depends on the pension benefit she gave up, how the $700,000 is invested and withdrawn, her other sources of income, and how long the money needs to last. A pension can provide predictable lifetime income, while a lump sum gives her control over the assets and the potential to leave money to heirs, depending on how the funds are managed and the account's beneficiary rules. The trade-off is between guaranteed income and control, flexibility and investment risk.

He Thought He Needed $88K To Invest In Real Estate. Then He Found A Way To Start With $100.

If the $700,000 was rolled directly into an IRA rather than taken as a cash payout, she avoids immediate income tax and the mandatory 20% withholding that applies to eligible rollover distributions paid straight to an individual . A direct rollover generally allows the entire eligible distribution to move into the IRA without current federal income tax or the mandatory 20% withholding that would apply if the retirement-plan distribution were paid directly to her.

Getting that rollover done correctly matters because taking the money personally can create a tax bill and, depending on the circumstances, may require her to replace withheld funds to roll over the full amount.

Recreating Some Of The Guaranteed Income She Gave Up

She doesn't have to choose entirely between a lump sum and guaranteed income. Some retirees use a portion of their assets to purchase an annuity that provides periodic income, potentially for life, while leaving the remainder available for other purposes.

Whether that makes sense depends on her other income sources, health, longevity expectations, liquidity needs and how much guaranteed income versus flexibility she actually wants. Annuities also vary substantially in their costs, features and guarantees, and the insurer's financial strength matters because the insurer is responsible for making the contractual payments.

That's a modeling exercise, not a guess.