Do you have the option of receiving your retirement money as a lump-sum retirement payout? Consider all your options and speak with a retirement professional first because you may want to turn that choice down.
A new MetLife study, Paycheck or Pot of Gold, warns of the “lottery effect” that can occur when all that money makes its way into a household at once. Surveying more than 1,050 retirement plan participants who had taken lump-sum payouts, the survey found that 21% had already used up 100% of that money; on average, it had disappeared in less than six years. In less than six years!
Like a lottery winner bereft of financial counseling, a recipient of a lump-sum retirement payout can too easily find ways to part with those dollars.
What did the respondents to the survey do within a year of taking their lump sums? In some cases, the money was practically spent:
- 27% used the funds to attack debt
- 20% said that they made home improvements
On the other hand:
- 22% gave some of the money away (sometimes to family members and friends)
- 12% bought a new car or took a major vacation.
Looking back, 31% lamented some of their buying and spending decisions in the first year after taking the lump sum, and 23% regretted financial gifts they had made.
Education about the merits and demerits of lump-sum payouts may be insufficient—in the survey, only 45% of pension plan participants offered the choice between a lump sum or a lifelong income stream remembered being given a comparison of the two options.
Be sure to speak with a professional Retirement Planner to ensure you are choosing the best strategy for your personal situation and goals. If you have questions about structuring your retirement, please contact me today!
Damian J. Sylvia
Retirement Income Solutions
Office: 732-508-6044
Direct: 732-284-0902
Email: Damian@MyFinancialSolution.org
Website: RetirementSolutionsNJ.com