It depends on what else will pay you. Monthly income lasts for life and can carry a survivor benefit and cost-of-living raises, while a lump sum gives you control of the money along with the investment risk and the risk of outliving it. Compare both against your Social Security age, savings, health and your spouse’s needs.
What does each choice give up?
A lump sum gives up the plan’s promise to pay you for as long as you live. Monthly income gives up control of the money. Which loss costs you more depends on the rest of your income.
| Monthly income | Lump sum | |
|---|---|---|
| How long it lasts | For your life, and a survivor’s if you choose a joint option | Until the account runs out |
| Inflation | Cost-of-living raises, if the plan pays them | Whatever your investments earn |
| Investment risk | The plan carries it | You carry it |
| What heirs receive | Only what a survivor option provides | Whatever is left |
| Taxes | Ordinary income as each payment arrives | Ordinary income as you withdraw, once rolled into an IRA |
How do you compare the two numbers?
Divide a year of monthly payments by the lump sum. The result is the payout rate the plan is offering, which you would have to match by drawing on the lump sum yourself.
TVA’s retirement system gives an example in its cash balance guide: a 55-year-old with an $87,500 account balance would receive $500 a month, the balance divided by TVA’s conversion factor of 175. That is $6,000 a year, or 6.9% of the balance. The factors fall with age, to 125 at 65, so the same balance at 65 would pay $700 a month: $8,400 a year, or 9.6%.
At $6,000 a year, the monthly payments add up to the $87,500 in about 14 and a half years. A 55-year-old who lives past about 70 collects more from the monthly income, before counting cost-of-living raises or what the lump sum could have earned. These figures are illustrative; your own plan’s numbers decide the comparison.
What does TVA’s pension let you choose?
That depends on your benefit structure. A cash balance account can be converted to a monthly pension or taken as a lump-sum cashout, and TVA’s retirement checklist has a separate application, RS-179, for a lump sum or a rollover to an IRA. The Original Benefit Structure pays a monthly pension for life, with a lump sum only for small benefits. Employees hired on or after July 1, 2014 have no TVA pension; TVA pays into their 401(k) instead.
For a cash balance member, TVA’s lump-sum election form lists what the lump sum gives up: it “will not include the value of any future cost-of-living adjustments,” you will not be eligible for the TVA Health-Care Credit, and you cannot keep FEGLI life insurance as a retiree, though you can convert it to an individual policy. Your 401(k) balance is unaffected. A monthly pension, by contrast, gets TVA’s yearly cost-of-living adjustment, 2.5% for 2026, starting after age 60 for most retirees.
How do taxes change the answer?
Both choices are taxed as ordinary income; the difference is timing. Monthly payments spread the tax across your retirement. A lump sum paid to you in cash lands in one tax year, which can push that year into a higher bracket and raise your Medicare premiums two years later.
The 10% early withdrawal penalty has an exception for leaving your employer in or after the year you turn 55, but only for money taken from the plan, not from an IRA. TVA’s form applies it only when you elect in the year you leave TVA: a deferred retiree who elects later pays the penalty unless 59½ or older that year. Tennessee taxes neither choice, as the Chattanooga page explains.
When does each choice fit?
Monthly income tends to fit when:
- you expect a long retirement, or your family tends to live long;
- your spouse would need income after you die;
- you want income that does not depend on markets.
A lump sum tends to fit when:
- other guaranteed income, such as both spouses’ Social Security, already covers your core spending;
- your health makes a long retirement unlikely;
- you want to leave money to heirs and are prepared to manage it.
How does the choice fit the rest of a plan?
The pension decision sets how much your savings and Social Security have to supply each year. Monthly income can make it easier to delay Social Security toward 70, since the pension covers part of the wait. A lump sum rolled into an IRA adds to the balance that required minimum distributions draw on from 73, or 75 if you were born in 1960 or later, and to the money your withdrawal order has to manage. FedEx’s Portable Pension Account offers the same choice, as the Memphis page describes, and the Knoxville page covers TVA’s other retirement rules.
What should you do next?
Ask your plan for both figures in writing, at the date you plan to leave: the lump sum, and the monthly amount under each survivor option. Divide a year of payments by the lump sum, list what the lump sum gives up besides the payments, and line both up with your Social Security estimate. Schedule a consultation to see both choices against the rest of your income.
Common questions
- Can I roll a pension lump sum into an IRA?
- If your plan allows it, yes. A direct rollover from the plan to an IRA avoids the 20% federal withholding that applies when the plan pays you instead, and the money stays tax-deferred until you take it out.
- What happens to a survivor if I take the lump sum?
- The plan stops paying anyone. With monthly income, a joint-and-survivor option can keep paying your spouse after you die, at the cost of a smaller check while you are both alive. With a lump sum, whatever is left in the account passes to your heirs.
- Can I change my mind after I elect?
- Usually not. TVA’s retirement system has members certify on its lump-sum election form that all of their elections are final, and a survivor named for monthly payments cannot be changed after payments begin, even after a death or divorce.
If the decisions on this page are ahead of you, the two of you can work through them with Robert Boeck before any of them becomes permanent.
Schedule Your Consultation