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Annuity or lump sum

If PBGC takes over my pension plan, will I still be able to choose between a lump sum and an annuity?

Only if your benefit is small. PBGC typically provides monthly benefits for life. However, you may choose to receive your benefit in one lump sum if:

  • Your plan terminated before 2024 and the value of your benefit is no more than $5,000, or
  • Your plan terminates in 2024 or later and the value of your benefit is no more than $7,000.

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

 

Choose between lifetime income (annuity) or a one-time lump sum. Use this page to understand each path and decide what is best for you.

Option Description
Annuity

Guaranteed Monthly Payments for life

Or joint survivor plan
Lump Sum One-time payment

Understand your options

Why is this important?

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.

What are the benefits and risks?

  Annuity Lump Sum
Benefits
  • 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
Risks
  • 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

What should I consider?

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

Do I have to choose between an annuity and a 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.

What can I do with my pension if I change jobs?

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)

Doing the research

Are there online tools that can help me calculate my lifetime income?

Yes. The Department of Labor has a lifetime income calculator(link is external) 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.

What if I need help making this decision?

If you need assistance, you can consult a financial professional. If you need to shop for a financial adviser, you may want to use the Consumer Financial Protection Bureau's "Know your financial adviser(link is external)" guide to help you ask the right questions. You may also find retirement information and request help via the Department of Labor's Consumer Assistance(link is external) page. 

For other resources, see the Consumer Financial Protection Bureau's guide to pension lump-sum payouts and your retirement security(link is external), the Pension Rights Center's "Should you take your pension as a lump sum?(link is external)" and the Society of Actuaries "Lump Sum or Monthly Pension: Which to Take?" Decision Brief(link is external).

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