My Wife’s Mom Has a Pension Decision $80K Lump Sum or $700 a Month Forever – What’s the Savvy Move?

It’s a common dilemma for pensioners and lucky lotto winners: take the cash today or be drip-fed a smaller amount of cash for the rest of one’s life. Undoubtedly, the right call will differ for everyone based on personal preferences and needs. In any case, the “better deal” ultimately depends on how the math checks out.

Some may gravitate towards a rule of thumb such as the “6% rule” — not to be confused with the “4% rule,” which is meant for withdrawal rates — which suggests pensioners take the monthly payments if the annual amount works out to more than 6% of the lump sum.

Of course, there are other variables (life expectancy, the size of the nest egg, and timely expenditures around the corner, just to name a few) one must also consider before making a massive decision that will set the tone for the rest of one’s retirement. As always, there’s no simple, conclusive answer that works for everybody. That said, in this piece, we’ll look at a specific case I came across on Reddit and give my personal opinion on what the pensioner’s thought process should be and which option stands out as offering more bang for the buck.

Which is more attractive: A $80,000 lump sum or $700 per month for life?

While I wouldn’t base the final decision on the “6% rule,” I do think the guideline offers a good, rough way to gauge which option is more attractive. Indeed, delaying gratification is not always the right answer, especially as one approaches one’s golden years. The time value of money (TVM) suggests taking the lump sum now rather than taking on smaller amounts that may not be worth nearly as much in the future. Not to mention, one may not be around to collect payments to make the monthly cash flow option worthwhile.

Furthermore, factors such as inflation should also be discussed with a financial advisor to ensure something such as the “6% rule” can be modified further. In any case, let’s check in on the case of a Reddit user whose mother is weighing whether to go for $700 per month or a $80,000 lump sum. Let’s see what the “6% rule” yields.

A sum of $700 per month works out to $8,400 annually, which works out to 10.5% of the $80,000 lump sum — that’s a heck of a lot higher than 6%. According to the “6% rule,” the monthly payment looks like the more attractive choice. All else being equal, the “better deal” seems to be the monthly cash flow stream.

Don’t forget about other variables (inflation and life expectancy)

Of course, one must also consider their age and current health, which will help one gauge their life expectancy. And while the monthly option seems to be a much better deal based on the “6% rule,” one must also factor in the potential for mounting inflation in the coming years. If one’s not in the best health and inflation is poised for a second wave, the lump sum may still be the way to go.

Indeed, if we haven’t seen the last of 8% inflation, it becomes that much tougher to determine the best choice. Indeed, the 6% rule is a great gauge, but given the future of inflation is unknowable, especially in the face of tariffs, it can be tricky to make the right call in today’s climate. 

The bottom line

For some, personal needs come ahead of the “better deal.” And given inflation stands to cloud which option is truly superior at this juncture, it may make sense to reach out to an advisor for a second opinion.

At the end of the day, there’s nothing wrong with getting more than one vantage point so that you can make a more informed move. If I had to choose one option, though, I’d go with the monthly amount, as $80,000 doesn’t seem like a whole lot, especially if the average life expectancy climbs from here, perhaps due to an AI-driven advance in medicine.

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