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A major consideration in retirement planning is whether to take a lump sum or annuity income stream from your company's pension plan. Here are the pros and cons to consider when making this decision for yourself.

Con: Lump sum withdrawals may cause you to run out of money by the time you die.

Lump sum payments often come with a 10% penalty if you access it before age 55, but this is waived once you reach your normal retirement date (or the date at which benefits are due under current rules). There's also an additional 20% penalty on the part of what is not drawn down as an annuity.

Con: You may wind up with more money now, but less later.

In most cases, you will receive a higher annual payment from your company's pension plan if you take it as an annuity rather than as a lump sum. If investment returns are strong, the lump sum will grow faster, but this is likely not to be enough to compensate you for taking a larger up-front payment as well as deferring your first annuity check.

Con: You can pass along that money and stretch your inheritance.

Since someone's pension benefits are included in that person's taxable estate - and subject to the federal estate tax - a lump sum payment can have a significant impact on the amount of inheritance you can pass along to your heirs. If this is important to you, going with an annuity makes sense in most cases.

Pro: The flexibility a lump sum may provide in your retirement planning.

If you need to access some or all of your lump sum for a major purchase or expense, the flexibility may outweigh the benefit provided by an annuity.

Pro: You can pass money along with you to your heirs.

If passing on extra money is important to you, taking a lump sum will generally provide you with more funds than an annuity would. However, this assumes that your lump sum will have to be depleted during your lifetime.

Con: An annuity might provide you with more income over time.

An annuity can be a way of guaranteeing yourself a fixed, predictable stream of income for the rest of your life - unless inflation is particularly high when you retire and begins to rise in subsequent years. If this is a possibility, an annuity plan can provide you with more income over time than a lump sum payment.

Con: There may be hidden costs and risks associated with buying an annuity.

If your company offers both group and individual annuities to its employees, the group rates will generally be better than what you can get on your own.

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