Dori Zinn
3 min read
Major financial decisions aren’t easy, especially as you’re mourning the loss of your partner.
You need to figure out which choice is better for you — taking a lump-sum payout now or claiming your husband’s pension every month for the rest of your life. You may also have the option to wait and receive a bigger survivor’s benefit in the future.
Before you decide, consider the pros and cons of each option carefully.
For some, especially those with confidence about managing money or serious financial needs in the short-term, taking the lump-sum payout may be the better choice.
This option gives you complete control and flexibility with the money immediately. You can save it, spend it, gift it or invest it. This money could have a big impact on your life. You can use it to build a nest egg for your retirement, buy long-term investments, bolster your emergency fund, or pay down expensive debt. By taking a lump sum, there’s also a good chance of leaving something behind for your loved ones upon your death.
The potential for growing your wealth is significant — if you put the entire $89,000 into an S&P 500 fund or another relatively safe investment, and we assume it provides a 6% average annual return, you will have $213,293 in 15 years thanks to the magic of compound interest.
But you have to make careful choices and there’s always the risk of losing money depending on what you do with it. You will no longer have a guaranteed safety net for life. For instance, you may choose risky investments that fail to provide the returns you expected. You may fall for a scam. You may also be tempted to spend in ways that are financially irresponsible.
There will also be tax implications for you to consider. Speak to a financial advisor about the best path forward for you.
Rather than a lump sum, you can opt for monthly payments until you die.
A guaranteed monthly income can help you manage your expenses as life circumstances change. It will be a steady source of income you won’t have to think about. You may also have more wiggle room to save and invest more than you do now.
If you are worried about running out of the money before you die, taking a monthly payout helps you avoid unnecessary spending or mismanagement. And there’s good reason to be concerned. A 2022 MetLife study of retirees found that 1 in 3 who took a lump sum from a defined contribution plan depleted their lump sum, on average, in 5 years.
However, if you ever fall on hard times and need more money to cover an emergency, you usually can’t ask for a lump-sum payout after you’ve already started the monthly benefit. It’s more restrictive when life events come up.
