If you’re approaching retirement and you’re one of the fortunate ones with a pension, congratulations. Pensions are becoming rare in today’s retirement planning world, and many people underestimate just how powerful this benefit can be. A pension provides something that’s hard to come by in retirement: a guaranteed income stream.
But here’s the catch—if you don’t make the right decisions about how to use your pension, you could negatively affect your retirement for decades to come. Choosing between a lump sum payout or a monthly pension benefit is just the beginning. The way your pension interacts with your other retirement assets, taxes, and Social Security could cost or save you tens of thousands of dollars.
Lump Sum vs. Monthly Pension: Which Is Better?
Most pensions offer two core options:
- Lump Sum Distribution – You take all the money at once, invest it, and manage withdrawals.
- Monthly Pension Payments – You receive a guaranteed income for life (single life or joint life options).
Lump Sum Considerations
- Works well for retirees who already have a large nest egg and can afford to take investment risk.
- Potential for long-term growth if invested wisely.
- Risk: market volatility and emotional decision-making. If you panic in downturns, this may not be the right choice.
Monthly Pension Considerations
- Guaranteed for life, offering peace of mind.
- Payments may cover essential expenses like housing, food, and healthcare.
- Check if your pension is covered by the Pension Benefit Guaranty Corporation (PBGC). In 2025, the guarantee covers payments up to $7,400/month.
- Watch for cost-of-living adjustments (COLA). Without one, inflation will erode your purchasing power.
Coordinating Your Pension with the Rest of Your Retirement Plan
Your pension isn’t an isolated decision—it needs to work alongside:
- Social Security – Timing your benefits strategically can maximize household income.
- Taxes – A monthly pension increases taxable income, which may reduce opportunities for Roth conversions and raise Required Minimum Distributions (RMDs) later.
- Medicare – Pension income affects your IRMAA calculation, potentially increasing your Medicare premiums.
- Investments – Consider treating your pension as the conservative portion of your portfolio, freeing you to take more growth-oriented risk elsewhere.
Beyond Lump Sum or Monthly Payments: Other Pension Strategies
You aren’t limited to just two choices. With careful planning, you can:
- Use Life Insurance: Take the single-life pension (higher payout) and buy a life insurance policy to protect your spouse.
- Purchase a Private Annuity: Provides lifetime income like a pension but may also offer death benefits for heirs.
- Bridge to Early Retirement: A pension can fund the gap between your retirement age and when you can access IRAs penalty-free at 59½.
Example: Coordinating Pension and Social Security
Imagine a couple, both age 62. One spouse has a pension paying $2,000/month, and the other is eligible for Social Security. If the Social Security spouse claims early while the pension continues, the pensioner can delay their own Social Security until age 70. That delay significantly increases the survivor benefit later—providing more income security for the surviving spouse.
Emotional Benefits of a Pension
Numbers matter, but retirement is about more than math. Having a guaranteed income stream reduces stress and provides confidence that your basic needs will be met—allowing you to enjoy the retirement lifestyle you’ve worked so hard for.
Why You Need Expert Guidance
Pension decisions are often irrevocable. Making the wrong choice could mean losing benefits, paying unnecessary taxes, or missing opportunities for wealth transfer.
At Stewardship Investments, we specialize in helping Christian families align their pension decisions with their faith, values, and financial goals. We’ve helped hundreds of families navigate these choices to retire with confidence and generosity.
Next Steps
✅ Schedule a free retirement planning meeting – Walk through your pension options with a Certified Financial Planner.
Your pension is a blessing. With the right strategy, it can become a cornerstone of a retirement plan that provides peace of mind, financial security, and the freedom to live generously.