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Retirement: When to take a lump sum pension payout

If you have other sources of income in retirement, a lump sum rather than lifetime payouts could be the better option. A lump sum gives you the flexibility to take large withdrawals for unexpected expenses. If you have a life-threatening illness or family history of, say, Alzheimer's, taking a lump sum can provide funds for health care or long-term care. Whereas a lifetime payout ends when you and your spouse die, the money from a lump sum that you don't spend can be left to your heirs.

Taking a lump sum also gives you more control over taxes in retirement, says Kevin Reardon, a certified financial planner in Pewaukee, Wis. When you take a lifetime annuity, your monthly payment will...