Debate: Should Pension Participants Accept Lump-Sum Buyouts Now?

Byrnes: With interest rates on the rise, many of these Americans will have access to secure investment options that can generate guaranteed returns even without a pension. More Americans should be advised about the choices they can make with respect to annuities and other investment vehicles to tailor their retirement investments to their individual needs. 

Bloink: Lump-sum pension buyouts aren’t anything new. While they may be beneficial for some pension beneficiaries, the fact is that too many retirees who choose to accept a lump-sum option buyout offer aren’t managing their funds responsibly. That creates a much more serious risk that their savings will run out during retirement, when they need income the most.

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Byrnes: interest rates are rising to a point where more clients would benefit from locking in rates within some type of annuity product. That eliminates the risk of the pension running out of funds while also ensuring the client has sufficient income in retirement — and has the added benefit of allowing the client to choose an annuity or financial product that more fully meets their needs.

Bloink: In the end, every pension participant has to carefully evaluate the pros and cons of a buyout offer considering their own situation. For individuals with reduced life expectancies, the buyout may be the most valuable option from a financial standpoint. Others can and do manage their lump sums effectively. 

This is one of those issues where there is no single right or wrong answer — but we shouldn’t advise clients to accept buyout offers solely based on current market conditions and interest rates at the time, because we have to think that most clients won’t simply reinvest the lump sum in an annuity to recreate the pension income stream.

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