I'm retiring soon with a solid nest egg — so should I take my pension in a lump sum or monthly payments with no COLA?

Christy Bieber

Wed, May 20, 2026 at 11:12 AM EDT 6 min read

According to the Pension Rights Center, only around 18% of Americans participate in a defined benefit pension plan at work. Defined benefit pension plans can be valuable because you typically get a set benefit guaranteed to last for the rest of your life.

However, pensions can be structured in different ways, and sometimes you have a choice about how to take the funds.

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For example, let's say that we have a worker named Alexander who has been at his job for 30 years and who has earned a generous pension. Alexander has plenty of money saved for retirement already in other accounts. He's retiring soon, and he can either take his pension as a lump sum that he can invest or he could accept regular monthly payments.

His pension does not offer cost-of-living adjustments (COLAs), and he thinks he can likely earn 6% per year if he takes the money and invests it. So, should he accept the monthly payments (which don't get bigger over time) or should he take the cash and invest?

Here are a few key questions Alexander should answer to decide.

What happens to the pension if he dies?

The first big question is what would happen to the pension if he dies.

If the pension payments stop right away, this is a strong reason to take the lump-sum payment and invest the money. Once he's received the funds and deposited them into an investment account, he has an asset he can leave to his spouse or whomever he likes.

If he doesn't take the money and sticks with monthly payments that stop when he dies, he's gambling on living a long time. If he retires and dies in two months or even in a couple of years, his family is left with nothing.

On the other hand, if the pension is guaranteed to pay out for a certain number of years, or if monthly payments transfer to his spouse after death, then the pension becomes more valuable because there's a reduced chance of benefits ending early if Alexander has bad luck.

Plus, not only is it more likely that the pension will pay out for a long time, but the guaranteed monthly income coming from it could give those left behind more financial security.

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How confident is he as an investor?

The next big question is just how confident an investor Alexander is.