The Cash Flow Clock: For Retirees - Book - Page 96
The Cash Flow Clock
case. Pensions offer higher income for the same
reason Social Security offers higher benefits the
longer you wait to file – they hope you die before age
80. Taking a lump sum guarantees you (or your
beneficiaries) will get at least something out of your
pension. But it may not be enough to meet your
income needs later in life. So, which is the right
choice?
If we know when we are going to die, then the
decision becomes much easier to make. It is one of
the first questions we ask clients when we meet with
them. So far, no one has been willing or able to give
us an accurate answer. We have to do the best we can
with the information we have available.
The Cash Flow Clock helps us understand the timing
of our income needs. If our biggest concern is
longevity risk (outliving our assets), then
guaranteeing income for life is probably the best
decision. If our priority is to spend more of our
assets early in retirement for traveling, supporting
family members, investing in our community,
upgrading our home, etc., then taking a lump sum
may be the right thing to do.
For most retirees, it is best to take a lump sum. It can
be rolled into an IRA to avoid being taxed all at once.
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