If you were offered a choice when you retired between taking a lifetime of pension checks or a hefty lump sum, which would you take?

In one recent study by the nonpartisan Employee Benefit Research Institute of nearly 119,000 workers, 73 percent of departing employees took the cash.

The results from the EBRI study coincide with previous research that suggests that roughly 70% of pension plan participants choose the lump sum.

A Tempting Offer

Grabbing the money is way too irresistible for most Americans, but if you’re tempted to join them, let’s look at what’s at stake from an entirely different angle.

If someone handed you a lump of clay, could you turn it into something that wouldn’t be mistaken for a Play-Doh stick figure? Could you do any better if you sat in front of a blank canvas with oil paints?

Are You a Skilled Investor?

No one expects those of us with paint-by-number abilities to create masterpieces. But when we reach retirement age, many Americans who have never mastered the basics of personal finance assume that they can magically become wise investors.

And by choosing to take the pot of money, retirees must assume the skilled-investor role. They are expected to be able to transform a lump sum of money – along with any other retirement assets – into an efficient cash machine that throws off enough income to keep the bills paid for what could be decades.

Maybe you can do that, but most Americans don’t possess the financial know-how to pull it off. Consequently, most retirees are going to be better off opting for the monthly pension checks, which represent a guaranteed stream of income for life, or seeking professional advice if they choose to take a lump sum distribution.

In the next post, we’ll share what you need to know when deciding whether to take a lump sum.

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