As retirement approaches, one of the most important issues that you'll have to face has to do with your retirement funds: Do you take them out in monthly installments (annuity) for the rest of your life, or simply take the balance of your account in a lump sum? Next to marriage, this could be the most important decision of your life.

It can be difficult to compare these payout methods. But there are certainly advantages and disadvantages to either approach.

Lump sum payout

  • You have control over your investment decisions. And you also control both the time and amount of any future distributions.
  • If you're single or have a likely short life span because of serious illness, a lump sum will allow you to leave the balance of the funds to your heirs.
  • The potential for growth is substantial when compared with your annuity, which is normally fixed.


  • In many respects, you're at the mercy of the market.
  • Poor investment performance could have a negative impact on your retirement funds and your future quality of life.
  • You'll have to not only invest wisely but also accurately estimate how long you'll live.
  • Normally, in the early years, the distributions are small in an effort to conserve principal.

Annuity payout

  • You're exchanging control for security.
  • Your monthly income is fixed and will generally remain so, which makes planning easier.
  • All of the investing is done by professionals.
  • You can count on this monthly income for the remainder of your life, and in some cases, the life of your spouse.


  • You have no access to your principal.
  • Since your payments are usually fixed, inflation will erode the benefit of your monthly payment over time.
  • The annuity might not accrue to your spouse after your passing.

Does it have to be all or nothing? Not necessarily. A lump-sum distribution might allow you to invest some of the funds and purchase an annuity with the balance -- perhaps getting the best of both worlds. It's just not an easy or simple decision. And it's one that's specific to each and every person, depending on individual circumstances. Certainly, don't make the decision alone. Ask for help from either a financial professional or your accountant (or both).

Roy Lewis lives in a trailer down by the river and is a motivational speaker when not dealing with tax issues. You can take a look at the stocks he owns as long as you promise not to ask him which stock to buy. He'll be glad to help you compute your gain or loss when you finally sell a stock, though.