I’m Retiring From Boeing. Should I Take a Lump Sum or Monthly Pension?

Deciding to take a lump sum vs. a monthly or yearly payout is a great but difficult choice. You need to win the lottery — or the workplace retirement benefits lottery — or experience some other stroke of fortune to have such options before you.

Depending on the size of your windfall, relying on a calculator and taking an honest look at your future goals can seem daunting. You could hire a CPA or financial advisor. You’ll want to consider taxes, current assets, retirement plans and more.

Or you can ask money expert Clark Howard.

Clark’s Choice: Lump Sum or Monthly Pension?

I’m retiring from Boeing and worried about the company’s financial stability. Should I take a lump sum or a monthly pension payout?

That’s what a Clark listener recently asked.

Asked Rob in Kentucky: “I’m retiring from Boeing after working there since 1997. Fortunately, I was hired while the company still offered a pension.

“At issue is whether to take a lump sum of $245,000 or receive a monthly distribution of $1,900. Boeing has [more than $50] billion in debt and a large unfunded pension obligation. With all of the challenges the company is facing, our concern is that annuity distributions could be affected over time. Does the PBGC [The Pension Benefit Guaranty Corporation] cover all projected distributions once they begin?

“My wife and I both turn 60 in April, so the monthly distribution would help offset medical insurance premiums until Medicare kicks in at 65. However, we are not dependent on the pension as a source of income. Can you explain the risks in taking a monthly distribution over a lump sum payout?”

Examining Boeing: Failing Company or Sure Thing Long-Term?

You’ve probably seen Boeing in the news recently. A door blew off of one of its planes mid-flight. The fallout briefly halted flights and production on the Boeing 747 Max 9. The Federal Aviation Administration (FAA) audited the company and slammed its production and quality control. Its quality issues cost United Airlines $200 million.

The company keeps running into problem after problem, more of which got uncovered just this month. It potentially faces hefty fines and lawsuits. Its stock price is down more than 32% so far this year.

However, Boeing benefits from government support and little competition.

“As to Boeing failing as an ongoing concern, Boeing basically has the Federal government backing them. Boeing is so important to the nation’s defense that the Federal government is not going to allow Boeing to fail,” Clark says.

“Even if Boeing in normal capitalism should fail, it will not fail because of the need to preserve our national defense. So I don’t worry so much.

“If Boeing were a company making toothpaste, and they were running it like Boeing runs with all the debt and all that, I’d be like, ‘Yeah. You may really want to consider taking the lump sum.’ But because of the fact that the Federal government’s going to be there as a backstop, I’m not as worried about you taking a monthly pension check from Boeing.”

What Happens to Your Pension if Your Company Goes Out of Business?

Back to the original question, which we’ve answered more than once.

Rob mentioned the Pension Benefit Guaranty Corporation (PBGC). It can step in and assume pension payments if a company goes out of business.

As it often is with finances, the devil is in the details.

“Depending on where you are on their scale, your pension may take a haircut in what the Feds assume moving forward vs. the full pension that you’re to receive now,” Clark says.

“Since you’re with Boeing, I assume (maybe incorrectly), most Boeing workers are union members. You should be able to get advice from the union on whether or not you are someone who would get a full pension check each month if Boeing’s pension fund failed or if it did not. If it failed, would you get a reduction or would you get the full amount?

“You also can go to the PBGC website and they have information explaining it. You better be really alert, have no distractions and read to see if you would have a full pension moving forward under the guarantee or not.”

Math: Lump Sum vs. Monthly Payout

Want the straight math?

At $1,900 per month, Rob would get $22,800 per year. It would take him about 10 years and nine months of $1,900 payments to equal the lump sum of $245,000.

Of course, $1,900 in a decade won’t have the same purchasing power as $1,900 now. And Rob could conceivably invest the $245,000 now and make a nice annual return for 10+ years. So it likely will take Rob much longer than 10 years to break even if he elects to take the monthly payouts.

However, long-term care has gotten increasingly expensive. And with long-term care insurance options decaying fast, the monthly payout is a nice form of longevity protection (and protection against healthcare costs).

There’s plenty to consider based on your circumstances and goals.

Final Thoughts

Boeing has made headlines for all the wrong reasons. But it’s a rare circumstance for a company to still offer a pension. And because Boeing is so important to the government, Clark doesn’t expect it to fail.

As far as taking a lump sum vs. a monthly payout, you can calculate a rough break-even point based on factors such as inflation. But you may do well to hire a financial advisor, even if you have to research how to find and hire a fiduciary on an hourly basis.