Should I Take a $700,000 Lump Sum or a $4,200 Monthly Pension?

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Sometimes life is kind enough to give us win-win decisions.

Would you like this or that delicious dessert at your family holiday party? Which of your favorite activities do you want to do when you have time off from work?

Or, in the case of one gentleman, would you rather have $700,000 immediately or $4,200 a month for life?

As much as that’s a winning result no matter what he chooses, I imagine it can be stressful making a decision that may have major financial consequences for years to come. Let’s see what money expert Clark Howard has to say.

Should I Take a Lump Sum or a Monthly Pension?

Should I take a $700,000 lump sum or a $4,200 monthly pension?

That’s what a Clark listener recently asked.

Asked Bruce in Indiana: “I am retiring soon and I have the option of taking a $700,000 lump-sum payment or a $4,200 monthly pension. I also have about $1,000,000 in my 401(k) and zero debt.

“In your opinion which would be the best option for me? Also, I plan to use a financial advisor who charges 1% to manage it for me and he is pushing the lump sum. What do you think?”

This is a much more nuanced and dynamic question than it may seem on the surface. Just some of the items that Bruce or anyone else in his position would want to consider include:

  • Age
  • Life expectancy
  • Monthly expenses
  • Inflation
  • Tax impact
  • Risk tolerance
  • Your company’s long-term financial stability

Be Wary of Leaving This Choice to a 1% Financial Advisor

Putting aside the $700,000 lump sum vs. $4,200 monthly pension for a bit, let’s focus on the last part of Bruce’s question.

He’s planning to pay a full-service financial advisor who charges a standard 1% annual fee based on assets under management.

If that advisor convinces Bruce to take the $1 million out of his 401(k) plus the $700,000 lump-sum payment and place it under the advisor’s care, that 1% fee becomes $17,000 a year.


“Bruce, this is going to be a terrible thing I’m going to say. I’m going to try to say this in a way that doesn’t sound snarky,” Clark says.

“But historically, there’s been a big incentive for money managers who charge 1% of assets under management to be biased toward you taking a lump sum instead of a monthly check. And to have you migrate your 401(k) into an IRA.

“Normal course of business, it’s better to leave money in a 401(k) if you’re with a company that has a low-cost 401(k).”

In other words, placing 100% of the decision in the hands of a 1% financial advisor probably won’t get you an objective answer. It’s possible, and there are trustworthy advisors out there. But they’re incentivized to answer this lump sum vs. monthly pension question in a specific way.

How To Get Objective Paid-Hourly Advice

Who, then, can you turn to for advice if not your full-service financial advisor?

“Before you migrate to this 1% person, I want you to go pay someone an hourly rate for advice,” Clark says.

“Hire someone at an hourly rate like you’d hire an accountant to do an evaluation of the pension and to do an evaluation of your existing 401(k) to give you advice that will not at all be influenced by the 1% that financial advisor would be earning on the money.”

Here are some options:

Lump Sum vs. Monthly Pension

Back to the tough part of the question. Should Bruce take the lump sum or the monthly pension?

Generally speaking, Clark says, the monthly pension is going to be a better choice than the lump sum. That’s assuming your employer is in a strong financial position.

“The reason is it takes a lot of financial pressure off of you. Because you don’t overspend or understand with your assets when you’re receiving that monthly pension,” Clark says.

“You’re going to know you have the $4,200. You’re going to have whatever you’re going to get from Social Security. And those two alone may cover much, most or all of your monthly expenses. So then you can relax through retirement.”

Lump Sum vs. Monthly Pension: Why the Math Is So Complicated

Let’s set aside taxes and inflation for a moment.


If I hand Person A a $700,000 check today and I hand Person B a $4,200 monthly check, how long will it take for Person B to receive more money than Person A?

Nearly 167 months. Or just shy of 14 years.

If Person B starts to receive the monthly check on their 65th birthday, he or she will be nearly 79 by the time he or she receives $700,000+ in monthly installments.

Of course, that’s assuming that Person A sticks all the cash under a mattress and doesn’t get any sort of annual return by investing it or earning yield on it. That’s also discounting the fact that $4,200 in 2038 most certainly won’t hold the same purchasing power of $4,200 in 2024.

The tax implications are difficult to know long-term and may differ for each person. But they must be accounted for if you want a pure mathematical explanation. (Remember, Clark thinks behavioral economics highly favor the monthly pension.)

Clark did not mention this in his answer. But he’s been concerned about the lack of viable options for longevity insurance and for paying for the type of long-term care that many of us need in the later stages of life.

If we continue to live longer, a pension can act as a sort of ongoing insurance against running out of money. And making that $1 million in Bruce’s 401(k) last — ideally with some sort of exposure to equities — can help offset some of the inflation pains.

Of course, we don’t know how long anyone will live. We also don’t know how disciplined of a spender or investor Bruce is.

Take These Financial Decisions at Retirement Very Seriously

As I mentioned at the top of this article, Bruce is in a good position. Either way, he’s got serious cash coming in his direction.

However, it is a decision worth taking seriously. Even if it means involving someone other than his 1% financial advisor and taking some real time to land on a decision.


“These questions at time of retirement for someone who’s been a diligent saver need to be really focused on and taken seriously,” Clark says.

“Pay for advice. Pay for it. Because you’ve got one chance to make the most efficient decision for your life you can.

“And that’s why before you would decide to use someone who’s charging you an asset under management fee like the common 1%, I want you to get straight-out advice from someone who has no financial incentive to get you to make a decision one way or another. Very important.”

Final Thoughts

Deciding between a lump sum or a monthly pension isn’t straightforward, even if you know the dollar amounts.

Most financial advisors will likely lean toward the choice that gives them the most assets under management. With all else being equal, more money under their care means a larger monthly bill for them.

Without knowing all the specifics, if the company offering the monthly pension is in a good financial position, Clark says that’s usually the choice he’d recommend.