The smart way to take your pension benefits?

For the dwindling number of us lucky enough to have a defined-benefit pension, there’s an interesting analysis in the June issue of the “Journal of Financial Planning” on how best to collect when the day comes.

In most instances you’ll have three choices:

1. Take a lump sum and (we hope) invest it.
2. Take monthly payments from the pension plan.
3. Take a lump sum and use it to buy an annuity from an insurance company to perform much the same function as #2

The study didn’t evaluate the wisdom of #1 vs. the other two, arguing that most people are better off with some sort of annuitized income stream. I’m not sure that’s true for real hands-on investing types, but no matter.

As to the question of #2 vs. #3, the analysis comes down in favor of #2—leaving the money in the plan and collecting benefits—because your monthly checks are likely to be larger.

One exception might be if your pension exceeds the limits of Pension Benefit Guaranty Corp.  coverage and you have reason to believe your plan is headed for termination. In that case you may be better off getting your money out ASAP and taking your chances with an insurance carrier.

Read more about pension safety in this recent article  from the Consumer Reports Money Adviser.
—Greg Daugherty

Greg writes the “Retirement Guy” column each month for the Consumer Reports Money Adviser newsletter.