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Workers & Retirees

Lump Sum or Annuity?

en Español

Making a choice

Many people with a retirement plan face the decision of choosing between an annuity and a lump sum payment to fund their day-to-day life after they stop working. An annuity provides a lifetime steady stream of income whereas a lump sum is a one-time payment.

Because this decision will affect your financial future, we are providing some information to help you make an informed choice. Deciding which option works best for you takes careful consideration because there are many factors to think about, such as your health, cost of living, assets and savings, and any other income you may have.

Key Questions

Why is this important?

Your employer may ask you to choose between a lump sum and an annuity before you stop working or when you retire. When making this decision, explore the benefits and risks because whichever option you choose may affect your financial future.

What are the benefits and risks?



Lump Sum


  • You will receive a steady income for the rest of your life, like keeping a part of your paycheck for life
  • You may be able to provide a lifetime income to your spouse or to another beneficiary
  • You can use the money to pay off debts (for example, mortgage and credit cards)
  • If you don't spend all of the lump sum, you can pass it on as an inheritance


  • Annuities are less flexible and may not pay benefits to your survivors if you die before you retire
  • If you are in poor health, an annuity may not provide enough money to cover costly medical bills
  • You may outlive your retirement funds
  • It's your responsibility to manage the money to provide you with future income

What should I consider?

Factors you should consider:

  • Your health (and your spouse's)
  • Your investment skills (and your spouse's)
  • Your living expenses (now and future)
  • Your savings (and your spouse's)
  • Other income (Social Security, pensions from other employers)
  • Life insurance for your beneficiaries
  • Debt (mortgage, car, credit cards, student loans, child support payments)
  • Taxes on the lump sum or annuity

Do I have to choose between a lump sum and an annuity?

That depends on your plan. Some pension plans allow you to take part of your benefit in a lump sum and part of it as an annuity. Check with your plan administrator.

If offered, what can I do?

Doing the research