A reader (age 62) recently asked if he should take a lump-sum pension buyout from his retirement plan. He has two choices:

1. Take a one-time, lump-sum payment of 12,784,200 naira ($78,000)
2. Immediately start a monthly payment of 117,192 naira ($716) that will last the rest of his life. If he dies first, his wife would then receive 87,894 naira ($537) per month for the rest of her life. (This is called a 75 percent joint and survivor annuity).

Should he take the lump sum? The answer depends on a number of factors. Let’s look at a checklist for both choices.

1. He might consider taking the lump sum if:
-he has other sources of lifetime retirement income that are adequate to cover his living expenses
-he has good uses for the payment other than generating retirement income, such as starting a business or paying off high-cost debt
-he has no other savings to access in case he has an emergency or a large unexpected expense
-he and his wife are in very poor health, and it’s highly likely both will die before 20 years has passed
-he has the skills and expertise to invest and draw down his savings for the rest of his life.

2. He might consider taking the lifetime monthly payment if:
-he needs a regular retirement paycheck to help cover his living expenses for the rest of his life
-he or his wife are in average health or better, and it’s likely that one of them will live for at least 20 years
-he has access to other savings in case he has an emergency or a large unexpected expense
-he isn’t equipped to invest and manage a lump sum for the rest of his life, even when he’s in his 80s or older.

If he’s really focused on generating a lifetime retirement income, here’s an important question: If he takes the lump sum payment of 12,784,200 naira ($78,000), can he generate a lifetime retirement income that’s higher than 117,192 naira ($716) per month? One way to answer this question is to find out how much it would cost to buy a lesser 50 percent joint and survivor annuity or single life annuity from an insurance company.

Please keep in mind that I’m not advocating that he buy such an annuity in this situation — I’m merely using the cost of an annuity as a yardstick to measure whether the lump-sum payment offer is a good deal.

Some people might worry that they could lose their pension. That shouldn’t be a concern in this case. The National Pension Commission is a federal agency that ensures regulation and supervision of all pension assets in regard to Pension Fund Administrators, Closed Pension Fund Administrators, Pension Fund Custodians and Insurance & Pension Department.

So, he faces two choices.

If he prefers having access to his money and is willing to pay the price of a smaller monthly retirement income, he would take the lump sum.

If he’s really focused on maximizing his lifetime retirement income, the lifetime monthly payment is the better choice.

Culled from
http://zealnote.com/take-pension-buyout

Thanks for bringing this very important topic and choices to light.
I believe the pensioner is in the twillight of his life, this is the time to slow down and enjoy time spent with family.
Regular monthly income might be better than the stress of trying to build a new business...

jacarantha:
Thanks for bringing this very important topic and choices to light.
I believe the pensioner is in the twillight of his life, this is the time to slow down and enjoy time spent with family.
Regular monthly income might be better than the stress of trying to build a new business...

i like your statement because you are so on point. I have met elderly delve into risky business world in either building block of flat or transport or gas refilling business. Such stress can be immense and unbearable for them. Although it can be managed better by those still in active working years and have opportunity to start again if any investment is lost.

A Labourer they say, is worthy of his wages. Monthly programme withdrawal enables a retiree to both pay his bills and also enjoy his/her self. However, the emphasis should be on early planning for retirement, such that a retiree would be able to retain the quality of life enjoyed before retirement.