Take the lump sum, or settle on the slow-but-steady monthly payout?

No, we’re not talking about winning a Powerball jackpot. We’re talking about what to do if your company or former employer actually has a traditional pension, not just a 401(k) plan, and offers you a lump sum if you give up the chance to receive a monthly pension check.

These days, figuring out what to do with your pension can be a real gamble.

The Consumer Financial Protection Bureau recently released a guide relating to the conundrum.

Bureau Director Richard Cordray noted in a statement that consumers can face a “difficult one-time choice to either take their pension payments in a lump sum or as a lifetime income stream.”

The big risk, of course, is running out of money.

With Powerball or pensions, the risk of taking a lump sum remains that you’d take the cash and blow it on big steaks, bubbly and Bugattis — and, yes, on every other trapping that comes with living the life of a big spender.

Ric Edelman, chairman and CEO of Edelman Financial Services, a national financial planning firm, said the attraction of taking a lump sum is that you have control over the money. But if you’re a spendthrift and tend to be irresponsible with money, you could be better off taking the monthly payout or setting up some allowance system.

Leon LaBrecque, CEO of LJPR, a fee-only financial adviser, has advised many retirees over the years on lump-sum offers, such as ones made to Ford Motor and General Motors salary retirees a few years ago.

Nationwide, several big-name companies have offered lump-sum pension payouts to former employees and others, according to the Pension Rights Center.

When does a lump sum make sense?

If you’re in bad health, not married and do not have children.

When do you take a monthly payout?

When you’re in excellent health, have other money to spend and have no one to leave a lump-sum payment to when you die.

What are key factors?

Your health and longevity, plus your need for financial security. You’d also want to run numbers and see what you’d pay for a regular annuity to get that guaranteed stream of income.

“How much do you need for certain?” LaBrecque asked. “If the monthly pension plus your Social Security covers that, take the guaranteed payments.”

Anyone who is offered a lump sum versus a monthly pension needs to review the tax implications. How much money would be withheld from the lump sum for taxes? Would you owe more money when you filed your return? Some retirees take action to defer income taxes on that lump sum by rolling over the money into a qualified retirement account.

Pension experts say thousands of consumers each year can face this complex math problem, especially as companies try to unload their pension liabilities.

The U.S. Treasury Department and the Internal Revenue Service in July announced restrictions that would prevent plan sponsors from making lump-sum offers to retirees already receiving monthly pension checks, unless prior to the date of the IRS announcement, the plan sponsor had already adopted, announced or had received a specific ruling or determination from the IRS regarding such a lump-sum window for retirees.

But other lump-sum options can continue.

The U.S. Government Accountability Office noted in one report that it had identified 22 plan sponsors that offered lump-sum windows in 2012 alone, covering about 498,000 participants and resulting in lump-sum payouts totaling more than $9.25 billion.

The GAO report issued in 2015 noted that most of these payouts went to participants who had separated from employment and were not yet retired, but some went to retirees already receiving pension benefits. The risks are substantial: “Participants potentially face a reduction in their retirement assets when they accept a lump-sum offer,” the GAO report noted. “The amount of the lump-sum payment may be less than what it would cost in the retail market to replace the plan’s benefit.”

Though some consumers might opt for that lump sum because they fear that their plan sponsor would default and the pension would end, that’s not always a legitimate fear. The GAO study noted that some lump-sum payout packages do not fully explain what benefits might be protected in the future.

“Few of the packets informed participants about the benefit protections they would keep by staying in their employer’s plan — full or partial protections provided by the Pension Benefit Guaranty Corp., the agency that insures defined benefit pensions when a sponsor defaults,” the GAO study said.

Yes, you might think you just hit something like the Powerball when your old employer offers several thousand dollars upfront if you give up a stream of payments in retirement. But you could lose out big time if you don’t do your own math to determine if it’s the right thing for you.

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