If you received a lump sum from your pension before age 60, what would you do?

General Discussion
1

I am 55 years old. I am being offered an early pension payout with the following options:

  • Take a lump sum of my pension (~$30,000) now, before age 60 and roll it directly into an IRA (and thus be subject to the restrictions of the IRA on when and how much I can withdraw and selection of investments). No penalty or taxes withheld.
  • Take a lump sum and roll into a currently active 401K plan (no penalty or taxes withheld) - however, I am currently unemployed, so unless that changes, this is not an option.
  • Take it as cash now and invest it in my investment account with no restrictions (20% federal tax, 5% state tax, then 10% penalty) and have full access to the funds.
  • Leave it as is and begin drawing on that pension at age 60 (or 65). The amount I would receive monthly is $320 per month regardless of whether I start at 60 or 65.

Every situation is different but what would you lean toward and why? What criteria would you use to figure out your choice?

Thank you in advance for your feedback and input.

  • Susan
2

Well, with the article I just read about some pensions becoming insolvent, I would make sure that your pension company is covered with pension insurance so that your money is guaranteed and safe for future withdrawals. Assuming it’s solid, I like the idea of getting a check besides Social Security in the future. (I’m assuming you’re eligible for SS as well?" I think it helps with budgeting to have the different incomes accounted for. But #1 of transferring to an IRA and being able to invest it is not a bad idea either. It depends on what you are most comfortable with. And since you’re 55, 5 to 10 years from retirement, what is your risk tolerance and if the market is down around the time you want to retire, will this impact you negatively? If you feel it would, I would stick with the guaranteed payout per month. Best wishes to you.

3

Never, ever cash out and pay penalties and taxes!

Is this pension one that you would receive the monthly for the remainder or your life? If it is and you are in good then I would leave it where it is and draw at age 60 if no difference in the monthly amount between the ages.

IRA rollover has potential if you are comfortable with some risk…if the economy turns and investments drop then you could lose a chunk of that money…