Many retirees have to decide whether to take their work pension as an annuity or a lump sum. While the value of the lump sum and annuity are straightforward to understand, comparing the two requires you to make assumptions about how many uncertain variables such as inflation, asset class returns, and longevity will evolve in the future. Any insights from this exercise then need to be combined with your unique financial situation and preferences to make the decision that is appropriate for you. The main purpose of this discussion is to provide an overview of the considerations for choosing between a lump sum and an annuity as well as illustrate how we approach answering this question. We emphasize the importance of a multifaceted approach to answering this question to reduce model-specific risk.
