When you are getting ready to retire, you will have to choose a retirement plan payout option. Some options offer a lump sum payout. This means that instead of being paid a monthly allowance, you take a large lump sum. Some retirees like the comfort of knowing they will receive a monthly payment. However, some may prefer a lump sum which gives them more control over their investments.
Under a CalSTRS investment, for example, you may have the option to receive a combination lump-sum and annuity payment. Under this choice, you will receive part of your Defined Benefit Supplement as a lump-sum payment and receive the remaining balance as an annuity. To elect this choice under CalSTRS, you must have at least $3,500 remaining in your Defined Benefit Supplement account after your lump-sum payment is made.
If you want to leave something to loved ones upon your death, you may want to consider the annuity options. Once you die, your pension payments will continue to your spouse. With a lump sum distribution, you can also name a beneficiary, allowing him or her to receive the remaining balance after you and your spouse are gone. It is important to consider your options and ensure that if you take a lump sum, there is enough to provide for your survivor.
When making the choice between the lump sum and the monthly pension payments, consider if you can make the right decisions to convert that lump sum into a stream of income that will last you and your spouse the rest of your lives.