Workers & Retirees

Many people with a retirement plan are asked to choose between receiving lifetime income (also called an annuity) and a lump-sum payment to pay for their day-to-day life after they stop working. An annuity provides a lifetime steady stream of income while a lump sum is a one-time payment.

Because this decision will affect your financial future, we are providing some information to help you make an informed choice. Deciding which option works best for you takes careful consideration because there are many factors to think about, such as your health, cost of living, assets and savings, and any other income you may have.

Your employer may ask you to choose between an annuity and lump sum. For example, your employer may ask you to make this choice (1) if you change jobs, (2) when you stop working, or (3) even after you have begun to receive monthly annuity payments.

When making this decision, explore the benefits and risks because whichever option you choose will affect your financial future.


Lump Sum


  • You will receive a steady income for the rest of your life, like keeping a part of your paycheck for life
  • You may be able to provide a lifetime income to your spouse or to another beneficiary
  • You can use the money to pay off large debts
  • If you don't spend all of the lump sum, you can pass it on as an inheritance


  • Annuities may give you less financial flexibility and may not pay benefits to your survivors
  • If you are in poor health, an annuity may not provide enough money to cover medical bills
  • You may outlive your retirement funds
  • It's your responsibility to manage the money to provide you with future income

Factors you should consider:

  • Your health

    (and your spouse's)

  • Your investment skills (and your spouse's), and how they may change as you age
  • Your living expenses (now and future)
  • Your savings (and your spouse's)
  • Other steady income (Social Security, pensions from other employers)
  • Debt (mortgage, car, credit cards, student loans, child support payments)
  • Taxes on the annuity or lump sum

That depends on your plan. Some pension plans allow you to take part of your benefit as a lump sum and part of it as an annuity. Check with your plan administrator.

    • You can:

      • roll over your pension to your new employer's plan, if your new employer has a plan that accepts rollovers
      • leave it with your previous employer (if allowed)
      • take the money from the pension in a lump-sum payment (if allowed)
    • You should consider, at a minimum: your health, investment skills, living expenses, debt, and other sources of income. Because you will still be working, you should also consider where you plan to make your new retirement contributions.

    • Yes. You can choose to buy an individual retirement annuity. However, individual annuities are more expensive.

    • Yes. The Department of Labor has a lifetime income calculator that allows you to estimate the amount of monthly income you will receive when you stop working and start receiving monthly payments.

      The results shown are estimates, not guarantees, of the level of the account balance or of the lifetime income streams of payments.

    • You select the form of benefit you want at the time you file your application to begin receiving your pension benefits.

      PBGC pays lump sums only when a total benefit has a value of $5,000 or less. All other benefits are paid as a monthly annuity.

      After the date of your first payment, you cannot change your selection. For more information about PBGC benefit options, see Your PBGC Benefit Options.

Category: Annuity

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