Thursday, September 12, 2013

Gotbaum Tells Council Lump-Sum Cash-Outs Are Like Cigarettes: Legal but Bad for You

Pension Rights Center

In this article, the head of a federal government agency implies that most people aren't very smart when given a choice between an annuity and a lump sum in a defined benefit plan.   He indicates that since 1997, more than two out of three people have taken the lump-sum option instead of an annuity when given a choice.
Therefore he concludes that more government regulation is needed to prevent you from making the "bad" lump sum choice.
This thinking appears to be shared by representatives of the Department of Labor who continue their push to make it more difficult for people to take "bad" lump sums from defined contribution plans.
Never mind that recent research from Felix Reichling and Kent Smetters questions the supposed superiority of the annuity choice.  And never mind that recent research from Frank Sr., Mitchell and Pfau (see previous post) suggests that it may make financial sense to rollover the lump sum to an IRA and purchase an annuity at a later date.  And never mind that rolling over the lump sum to an IRA, buying a longevity annuity with a portion of the proceeds and self-managing the remainder of the assets may help you better manage risks in retirement by diversifying your sources of retirement income.
Bottom line--Don't worry.  When it comes to your retirement, your federal government knows what is best for you.