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CFPB Releases Guide to Help Consumers Navigate Pension Payouts


Guide Highlights Trade-Offs Between Lump-Sum and Lifetime Monthly Payout Options

From the CFPB Press release dated January 12, 2016

WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) is releasing a guide to help consumers navigate their pension payout options and make the right decision about their retirement income. The guide gives near-retirees the information they need to understand the trade-offs of taking their pension in a monthly payment or in a lump sum.

To help consumers who are considering a lump-sum payout option from a private-sector defined benefit pension plan, the CFPB guide also provides tips and warnings about how to protect and best manage that money.

“Retirees are increasingly being faced with the difficult one-time choice to either take their pension payments in a lump sum or as a lifetime income stream,” said CFPB Director Richard Cordray. “Clear information about the trade-offs they face can help consumers make the right financial decision for their retirement security.”

The guide for navigating pension payouts can be found at: 

Many employees in the private sector are covered by defined benefit pension plans in which retirement benefits are typically based on years of service and earnings, and paid out in the form of lifetime monthly payments. Increasingly, employers are giving consumers eligible for retirement benefits the option of a one-time payment for all or a portion of their pension, commonly known as a lump-sum payout. Available data suggests that in a given year thousands of retiring consumers face this decision.

According to a government report, many retiring consumers are not provided information by their employers about the long-term financial impact of choosing between a lump sum or an annuity pension payout or where to find help. The CFPB’s consumer guide released today highlights the benefits and risks of taking a pension as a lump sum instead of lifetime monthly payments. Key factors for consumers to consider include:

Length of time income is needed: The monthly payment option offers steady lifetime income, which substantially reduces a consumer’s risk of running out of money later in life. This is especially important if the consumer or their spouse is in good health or if either of the two has a family history of longevity. A lump-sum payout, however, might make sense if the consumer is terminally ill or in critically poor health, or the consumer already has sufficient income to cover basic living expenses.

Money management skills: When a consumer chooses a lump-sum pension payout instead of monthly payments, the responsibility for managing the money shifts from the employer to the employee. For a monthly payment option, consumers don’t need to worry about their investment skills, or how their financial management skills may change as they age. In contrast, a lump-sum payout can give a consumer the flexibility of choosing to pay off large debts, where to invest or save the money, and when and how much to withdraw.

Another factor to consider is that a consumer’s pension is typically insured by the Pension Benefit Guaranty Corporation (PBGC). In the event the consumer’s company declares bankruptcy or cannot make its pension payments, the PBGC guarantees those payments up to a certain amount. Pension payments are also protected against certain creditor claims or debt collectors. With a lump-sum payout, consumers lose these protections.

Pension Payout Tips

To assist retirees who plan to make the one-time choice for a lump-sum pension payout, the CFPB guide also provides key tips to consider, including:

  • Check for lump-sum calculation errors: Many factors determine a lump-sum payment amount, including age, years of work, earnings history, taxes withheld, and the terms of the plan. Consumers can detect errors by taking a look at their most recent pension statement or a consumer can contact a pension counselor for assistance or to resolve errors.
  • Plan for tax consequences: Consumers will pay taxes on a lump-sum payout. This money is generally treated as ordinary income for that year. For this reason, an employer is required to withhold 20 percent on the amount. In addition, a consumer could pay a 10 percent early withdrawal penalty tax if they have not reached age 59½. Consumers can defer income taxes on their lump sum by rolling over the funds into a qualified retirement account.
  • Consider future needs of surviving spouse: If married, consumers should consider the long-term financial well-being of their spouse. A family history of longevity and good health may mean the possibility of spending 20 or more years in retirement. Most pension plans provide monthly benefits to a surviving spouse or another beneficiary after the pension holder’s death through a joint and survivor payout option.
  • Protect the lump sum from fraudsters: Older consumers are often targets of scammers and fraudsters. Consumers should verify information, ask questions, and seek advice from trusted professionals, if they are offered high returns and low risk to invest their lump sum.

More information for older Americans about making financial decisions, protecting assets, preventing financial exploitation, and planning for long-term financial security can be found at:


The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit