Don’t Make This Huge Mistake with Your Pension

Don’t Make This Huge Mistake with Your Pension

If you're fortunate enough to have a pension from one of your employers, you'll generally have two options for getting the money: as an annuity, meaning you'll get a regular payment each month for the rest of your life; or as a lump-sum payout, meaning you get a large wad of cash immediately. A recent MetLife survey found that choosing the latter option is usually a horrible mistake.

The problem with suddenly getting your hands on a large sum of money is that the temptation to spend more of it than you should is intense. The MetLife survey found that one in five of the people who took lump-sum payouts spent it within a few years; on average, the money lasted about 5 1/2 years. Given that most retirements will last for 20 to 30 years, spending your entire pension in less than six years is clearly going to lead to disaster. Many of the survey respondents who took lump-sum payouts said that they regretted how much of the money they spent during the first year and how they spent it. On the other hand, 96% of those who chose the annuity option are happy with their decision.

Image source: Getty images.

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Source: Fool.com