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What to Do with Your Lump Sum When
You Retire

Gone are the days of a secure, employer-sponsored retirement plan. Companies used to reward employee loyalty upon retirement with a guaranteed pension that would last a lifetime. But more and more this benefit is going away, replaced by 401(k)s or nothing at all. From the early 1990s to 2011, the percentage of U.S. workers covered by a defined benefit pension plan declined from 35 percent to 18 percent, with most of the decline occurring in the private sector.

Of those organizations that are still offering pensions, many have pension funds that are facing insolvency. One recent study estimated that 94 percent of corporate pension plans were underfunded, with a shortfall totaling more than $342 billion. As a result, some companies offer their retiring workers a pension buy-out in the form of a lump sum rather than providing them a lifetime of guaranteed retirement benefits.

Whether you’ve been offered a lump sum as a pension alternative or are faced with your own lump sum in the form of your 401(k) savings, the responsibility of creating a guaranteed income in retirement now falls to you. There are many things to consider if you want to be able to make this amount last the duration of your life.

First, you want to make sure you roll the lump sum directly into an IRA or Roth IRA, depending on your circumstances. Otherwise the distribution will be taxed as ordinary income and may push you into a higher tax bracket. If you take the distribution before age 59½, you may also owe a 10 percent early withdrawal tax penalty.

Second, make risk one of your primary considerations when deciding where and how to invest the lump sum you intend to live from in retirement. Market-linked investments may offer the potential for higher returns, but they come with increased exposure to risk. While trying to retire and stay retired, remember that a return of your investment is often more important than a return on your investment.

That being said, returns do matter. You want to make sure your lump sum can keep up with inflation so that you don’t lose your purchasing power in retirement. Without inflation protection, an annual inflation rate of 3 percent will cut the value of your benefit in half in 24 years.

IRAs (both traditional and Roth) and financial products like fixed annuities are designed to help you turn your lump sum into a monthly income stream in retirement. A qualified professional would be able to help you figure out the best method to make your nest egg last the duration of your golden years.

There are many considerations when figuring out what do to with your lump sum. The financial security of your retirement could be on the line. When your employer is no longer offering you a secure pension, it’s time to create one for yourself.


Christopher Scalese, financial advisor and president of Fortune Financial Group, is best known as Northeastern Pennsylvania’s Retirement Specialist. Scalese has spent the last two decades of his career assisting area residents with the financial transition from the working years to the retirement years. His primary goal is to help individuals structure their finances so that they have a steady income throughout their lifetime, while working to ensure their finances aren’t overly exposed to risk or unnecessary taxation. Scalese is an investment advisor representative, life and health insurance licensed and currently working on earning his Chartered Financial Consultant designation. Scalese received his Bachelor of Science degree in finance and Master of Business Administration degree from Wilkes University. For more information about Christopher Scalese and Fortune Financial Group, please visit

Investment advisory services offered through Global Financial Private Capital, LLC,
an SEC Registered Investment Advisor.

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