There are both pros and cons to choosing monthly pension payments over a lump-sum payment. Among the pros are the steady income these plans provide and fact that the retiree won’t have struggle with investment decisions and management. The lack of temptation to spend a large amount of money unwisely is also one of the pros of monthly pension payments. Among the cons are the possibility that fixed payments may not leave as much money for extras and the fact that some monthly pension payments might not include inflation adjustments.
One of the pros of monthly pension payments is the steady income. When a person opts for this type of pension plan, he receives a fixed income for life or for a set number of years. He can budget this amount to pay for his living expenses, regular bills, and the extras he wants to purchase each month. Since he will receive the same amount each month, there is no guessing about what he can afford.
Also among the pros of monthly pension benefits is the fact that the retiree doesn’t have to puzzle over investment decisions or put effort into managing investments. In most cases, he can simply relax and enjoy having steady income in his retirement years. This is an important point, as a person who opts for a lump-sum pension often has to make these decisions, and poor choices can lead to serious financial difficulties.
Some people also consider the lack of temptation among the pros of choosing monthly pension payments. If an individual has access to a large sum of money in a retirement account, he may feel tempted to use large portions of it unwisely. With monthly benefit plans, however, the damage a person can do with poor decisions is usually diminished.
One of the cons of monthly pension benefit payments is the fact that the payments are fixed. As such, a retiree may not have access to extra money he needs from time to time. For example, if a retiree wants to take a dream vacation or go on a shopping spree with his grandchildren, he may find this harder to accomplish on a fixed income than he would if he had a lump sum of money with which to work. Unless he has other resources for getting the money he needs for extras, such plans will require him to put careful thought and effort into budgeting and saving his money.
Another con of monthly pension payments is inflation. The fixed payments a person receives from a monthly pension account often leave a retiree vulnerable to fluctuations in inflation. While his pension income might start out strong, the retiree could eventually find that his dollars do not stretch as far as they did in the past. This is not a problem for everyone who receives a monthly pension, however. Some people have pensions that include cost-of-living adjustments.