A. Here are 6 factors you should consider a lump-sum buyout offer:
- Term of the buyout: you need to understand not only the amount of the lump sum, but also the amount of pension payments that would be forfeited. Although tempting, the lump sum amount may be less than the total of lifetime pension payments.
- Employer's financial stability: although pension payments up to a certain amount are guaranteed by the PBGC, the PBGC's financial problems may make it risky to count on that insurance.
- Interest rates: lump sums are calculated by taking into account interest rates. The lower the interest rate at the time of the buyout offer, the higher the lump sum.
- Longevity: lump sums are calculated by considering life expectancy. A healthy person should consider retaining pension payments, while someone with medical issues should consider taking the lump sum.
- Financial habits: if you are a spendthrift person, you are probably better off passing up a buyout offer. If you invest responsibly, you could take a lump sum.
- IRA rollovers: pension payments cannot be rolled over to an IRA, but lump sums can be rolled over. IRAs require RMDs, but otherwise allow flexibility for withdrawals.