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"I think the mind should deliver new and fresh designs all the time."
— Sergio Marchionne
As you're considering your options, it's important to understand that if you choose the lump sum over the monthly payments, you are shifting the investment risk from the company to yourself. If you take a monthly payout, that risk is on the company — and, within certain limits, the federal government's Pension Benefit Guaranty Corporation (PBGC) stands behind your company in case it were to go bankrupt.
Important 2026 Update
As we'll see later in this chapter, if your plan has been transferred to an insurance company through a pension risk transfer, the PBGC backstop no longer applies — that protection is replaced by your state's life and health insurance guaranty association.
If you decide to take a lump sum payment, you have many potential benefits, but you are now responsible for investing the money — or you need to find a financial advisor you trust to manage it for you. As we discuss your options in this chapter, we'll break them down into the two basic choices you have. But in each instance, there are also numerous other decisions you can make that will affect the payment you receive.
Option 1: Lump Sum
Take control of your pension as a single payment rolled into an IRA. You manage the investments and withdrawals.
Option 2: Monthly Payments
Keep the traditional pension structure with guaranteed monthly checks for life from your employer.
Option One: Lump Sum Payment
If you elect to take the lump sum, you are likely proceeding with a rollover to an IRA. You are rolling the money from the pension plan over to a pre-tax IRA, and then you are going to invest the money so that you can plan for the long term and generate income based on your monthly needs. Any withdrawals from this IRA will be subject to income tax.
Potential Disadvantages
You are now responsible for investing the money, which many people would view as a disadvantage, precisely because the risk is being shifted to you — or to you along with your team of financial advisors. Once all the money is spent, it's gone.
Be Honest With Yourself
If you are a person with a track record of running up credit card debt or spending excessively, it may make more sense for you not to take the lump sum. If you have jumped in and out of the market at the wrong times, can you expect to treat this money better? Sometimes, it's a matter of being better safe than sorry.
How to Invest Your Lump Sum
There are two primary ways you can invest your lump sum:
- At-Risk investments — stocks, bonds, ETFs, mutual funds, real estate, etc. These can appreciate and depreciate due to outside factors.
- Guaranteed investments — This is where you bring in an insurance company to provide either protection against market losses or a guaranteed lifetime income stream through an annuity.
Four Primary Options to Allocate Your Lump Sum
Various annuity strategies to generate consistent, reliable income regardless of market conditions. Most like your pension.
Foundation protected from market, with remainder invested for long-term growth.
Smaller pension-like income combined with more funds geared toward long-term growth.
A balanced allocation of stocks, bonds, and alternatives. You ride the market for potential growth.
We've said this before, and we'll say it again: there is no single correct choice. Everyone is different; every situation is different.
A Word of Caution About Advisors
Be aware how the financial advisor you meet with is licensed. If they are only securities licensed, they will be more biased toward the at-risk world. If they are only insurance licensed, they will be more biased toward the safe world. Look for advisors who are dually licensed and can offer advice on both.
Flexibility and Control
The major benefit to taking the lump sum is control. You have the money; you pick how it's invested. This allows you to customize the money to your unique needs.
Another benefit is flexibility. Let's say you determine you need $3,000 a month from your retirement funds. A few years later your mortgage is paid off, and you would like to lower that monthly amount to $2,500. Quite simple — you just lower the amount you receive. You can also take extra withdrawals at your discretion — say you decide to take a nice family vacation and want an extra $15,000. You can withdraw that without changing your regular payment amounts.
Passing It On — and What Changed in 2019 and Beyond
For many retirees, the biggest advantage to the lump sum is that you can pass this money on to your children and grandchildren.
Major 2026 Update: The 10-Year Rule
The Old Rule: The “Stretch IRA”
When this book was first written in 2019, non-spouse beneficiaries who inherited a traditional IRA could “stretch” required minimum distributions over their own life expectancy — meaning a 50-year-old child inheriting a parent's IRA could spread distributions across the next 30+ years.
The New Rule: 10-Year Drain
The SECURE Act of December 2019 eliminated the stretch IRA for most non-spouse beneficiaries. Under the new rules, most beneficiaries must fully distribute the account within 10 yearsof the original owner's death.
Eligible Designated Beneficiaries (Exceptions):
- A surviving spouse
- A minor child of the account owner (until age of majority)
- A disabled or chronically ill beneficiary
- A beneficiary not more than 10 years younger than the account owner
What This Means for Your Lump-Sum Decision
If part of your reasoning for taking the lump sum was “I want to leave this money to my kids in a tax-efficient way that grows for decades,” the math has changed. Your kids will likely be forced to drain the account during what may be their highest-earning years, often pushing them into higher tax brackets.
This doesn't make the lump sum a bad decision. It just means:
- Roth conversions during your lifetime become much more valuable as a way to pre-pay tax at known rates. We discuss this in detail in Chapter 6.
- Life insurance as a wealth-transfer tool deserves a fresh look, since proceeds pass income-tax-free to beneficiaries.
- Naming a charity as beneficiary for some or all of an IRA has become more attractive for charitably inclined retirees.
The Tax Time Bomb
The last major disadvantage of the lump sum is that you are potentially adding fuel to the fire on the tax time bomb that is your pre-tax assets. It is not uncommon to have an autoworker retire with $1 million in their 401(k) and another $1 million in their lump sum pension.
Eventually, you will be forced to take distributions from these accounts at whatever tax rates may be at that time. Under current law, required minimum distributions (RMDs) begin at age 73 for those who turn 72 between 2023 and 2032, and at age 75 for those who turn 74 after December 31, 2032.
Option Two: Monthly Pension Payouts
Now let's walk through the second option: leaving things as they are, where the company is on the hook to pay you a monthly check as long as you live.
Disadvantages
- You completely lack control and flexibility — you can't change payments up or down
- You limit your potential to do better on the investment side
- Any remaining funds when you die cannot become legacy money for children or grandchildren
Advantages
- Peace of mind: Guaranteed checks as long as you live
- Consistency: You're effectively forced to be on a budget
- If you're not the best with money, the monthly payment protects you from yourself
What Happens If My Company Goes Bankrupt? The PBGC Backstop
Retirees in the auto industry already lived through this possible reality, with both General Motors and Chrysler emerging from bankruptcy in 2009. Should the company paying your pension fall into bankruptcy, there is a federal agency — the Pension Benefit Guaranty Corporation (PBGC) — that has your back, within limits.
The PBGC is much like the FDIC, which you're probably more familiar with. Companies that have pensions pay insurance premiums to the federal government, which in turn ensures that pension benefits will be paid if the company goes bankrupt.
PBGC 2026 Maximum Monthly Guarantee Table
| Age | Straight-Life Annuity | Joint & 50% Survivor |
|---|---|---|
| 65 | $7,789.77 | $7,010.79 |
| 60 | $5,063.35 | $4,557.02 |
| 55 | $3,505.40 | $3,154.86 |
| 50 | $2,726.42 | $2,453.78 |
A few important things to notice:
- At age 65, single life: up to $7,789.77 per month is guaranteed in 2026. (For comparison, the 2019 max was $5,607.95.)
- The reduction for taking benefits early is steep. A 55-year-old with a $5,000/month pension would see coverage drop to $3,505.40 — a significant haircut.
- The challenge for autoworkers who retire early is that the maximum guarantees may not fully cover their full pension.
What If My Pension Gets Transferred to an Insurance Company?
Critical 2026 Update: Pension Risk Transfers
This is one of the most important new sections of this updated edition. When your pension is transferred to an insurance company, your monthly benefit doesn't change — but the entity responsible for paying you, and the safety net behind that entity, changes entirely.
Before Transfer
- You are a creditor of your employer
- PBGC steps in if plan terminates underfunded
- Federal protection up to $7,789.77/month at age 65
After Transfer
- You are a creditor of an insurance company
- PBGC is no longer involved
- State guaranty limits often $250,000 present value
In Michigan, the present-value limit on annuity benefits is $250,000 — compared to the PBGC's age-65 monthly cap of $7,789.77 (which translates to far more than $250,000 over a lifetime). This is a meaningful downgrade in worst-case protection.
What This Means for Your Decision
If you suspect your plan may eventually be transferred to an insurance company — and given the trend, that's a real possibility for any current Big Three pensioner — the lump-sum decision becomes a different kind of question:
“Do I want my retirement income to depend on an insurance company that my former employer chooses, or do I want to take the lump sum and have direct control over how the money is invested, including potentially purchasing my own annuities from insurance companies I research and select?”
There is no single right answer. But this is one of the biggest reasons retirees today are leaning more heavily toward the lump-sum option than they did a decade ago.
Case Study: Ron and Kathy (Hypothetical)
Hypothetical Example
Ron was retiring at age 68 from one of the Big Three automotive companies, where he had worked as an engineer for over thirty years. His wife, Kathy, was a nurse and was retiring at the same time.
Option A: Lump Sum
$1,000,000
Option B: Monthly Pension
$5,700/month
Kathy worked in the medical profession and would receive her own pension plus Social Security. Their core expenses were going to be more than covered without ever touching Ron's pension.
Our Recommendation: Lump Sum
- Ron didn't need all the monthly pension income
- He preferred control over the lump sum
- He consolidated his 401(k) and pension into one IRA
- We built a Roth conversion plan to address the 10-year inheritance rule
Your Pension, Your Choice
What it boils down to is that there is no overarching answer, no one-size-fits-all decision. We have laid out the positives and negatives of each. It's up to you and your financial advisor to balance the pros and cons and make the decision most suitable for you.
Key 2026 Factors to Consider
- 1The interest-rate seesaw that violently affected lump sums in 2022–2023
- 2The accelerating trend of pensions being transferred to insurance companies
- 3The elimination of the stretch IRA and the rise of the 10-year rule
- 4Rising RMD ages (73, soon 75 for younger retirees)
- 5The tax sunset and Roth conversion windows that today's retirees can use strategically
Individual circumstances matter — in fact, they are what matters most. We suggest you get individualized advice from a member of our firm or another qualified person you trust, so you can decide what's best for you and your family.