My old job had a pension and they offered me to cash out for $24k or get $100 per month for life — which should I choose?

Quick Read

• The $24,000 lump sum requires a 20-year horizon to break even with $100/month payments, favoring the pension only if you outlive that mark.

• Investing the lump sum in a high-yield savings account at an APY somewhere between 4% and 4.5% generates roughly $80 to $90 per month while preserving the full $24,000 principal.

• A direct rollover into a Traditional IRA avoids a mandatory 20% IRS withholding, income taxes, and a potential 10% early withdrawal penalty.

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When I hear about people who are eligible for a pension from a former employer, I feel a little jealous. Aside from Social Security, any money I have in retirement is money I will have to save myself.

Private sector companies have largely abandoned pensions in favor of shifting the savings burden onto employees. If you are lucky, a 401(k) match gets thrown into the mix. I am self-employed, so I get none of that. Then again, I do get to set my own hours and work from the beach when the mood strikes, so there is that.

I recently came across a Reddit post where the author faces an interesting situation. They are entitled to a pension from a former employer and have two options: take about $100 per month for the rest of their life, or cash out the pension at around $24,000. It is not a simple call, but there is a fairly straightforward framework for arriving at a smart answer.

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It all comes down to your break-even age

The decision to take a lump sum versus a monthly payout hinges largely on how long you expect to live. To figure that out, calculate your break-even age. The math is direct: the poster can receive $100 a month indefinitely or accept $24,000 up front. Their break-even is the age at which they receive the lump sum, plus 20 years. If the lump sum becomes available at 65, the cumulative total under either option is roughly equal by age 85.

The current rate environment shapes this calculation in an important way. Federal law requires pensions to use Minimum Present Value Segment Rates to calculate payouts, and those rates carry an inverse relationship with lump sum value: higher rates produce smaller lump sums. As a general rule, a 1% increase in segment rates reduces a lump sum by roughly 10%, which means lump sum offers today remain significantly smaller than they were during the near-zero-rate environment of 2020 and 2021. It is also worth noting that Social Security carries a 2.8% cost-of-living adjustment for 2026, while most private pensions are fixed. That $100 a month buys real purchasing power today, but its value quietly erodes over time as prices rise.

Other considerations enter the picture too. A monthly payout delivers a guaranteed amount for as long as you live, and you might outlive even your best projections. That predictability provides real peace of mind. On the other hand, a lump sum gives you the opportunity to invest and grow the money. It can also address a near-term financial goal, such as a dream vacation while your health is still good.

The math gets more complicated

While the break-even calculation is a useful starting point, the full picture is more nuanced. One key factor is the time value of money: a dollar held today is worth more than a dollar received later because of its potential to grow.

The Federal Reserve held the federal funds rate steady at 3.50% to 3.75% for the fifth consecutive meeting on July 29, 2026. The vote was 9-3, with three regional bank presidents, Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, and Lorie Logan of Dallas, dissenting in favor of a rate hike. Markets currently price in two quarter-point increases by year-end, while the Fed’s own June dot plot projected one. Against that backdrop, top high-yield savings accounts at online banks are offering around 4.0% to 4.2% APY as of August 2026. At 4.0%, a $24,000 lump sum generates roughly $960 a year in interest, or $80 a month, without touching the principal. At 4.2%, that rises to about $1,008 a year, putting the income stream within striking distance of the $100 monthly pension payment. Depending on where you park the money, you can approximate the pension’s income while preserving the full principal for your heirs.

Compound growth further tilts the analysis toward the lump sum over long time horizons. Receiving $100 a month for 20 years nominally equals $24,000, but reinvesting and compounding the lump sum allows it to pull well ahead of that figure over the same period. Under realistic return assumptions, accumulated monthly payments would take a very long time to catch up with a well-invested lump sum.

Tax-advantaged accounts can amplify the advantage. For 2026, the IRA contribution limit is $7,500 for all savers, with a $1,100 catch-up for those 50 and older, bringing the total to $8,600. Savers who participate in an employer-sponsored plan such as a 401(k), 403(b), or 457 and who are between ages 60 and 63 can also take advantage of a SECURE 2.0 Act “super catch-up,” which raises the workplace-plan catch-up ceiling to $11,250 for that age window. A rolled-over lump sum, combined with fresh annual IRA contributions, can build a meaningful tax-advantaged balance over time.

The tax trap of “cashing out”

Be careful with the phrase “cash out.” Taking a check made payable to yourself triggers an immediate, mandatory 20% IRS withholding, plus ordinary income taxes, and potentially a 10% early withdrawal penalty if you are under 59.5 years old. To harness the full growth potential of the $24,000, execute a Direct Rollover into a Traditional IRA. That move shields the entire amount from immediate taxes and preserves the full balance for compound growth.

Legacy and portability

Liquidity is a significant advantage of the lump sum that is easy to overlook. One of the biggest drawbacks of a monthly pension is that it typically ends when you do. If you pass away early, that $100 per month disappears, leaving nothing for your heirs. A $24,000 lump sum, by contrast, is a transferable asset. Whether you roll it into an IRA for your spouse or hold it in a brokerage account as a reserve for future needs, you stay in control of the wealth you earned.

Company solvency and pension insurance

While a $100 monthly liability is modest, retirees with larger pensions must consider the risk of their former employer going bankrupt. Pensions are insured by the federal government through the Pension Benefit Guaranty Corporation (PBGC), but that insurance is capped. For a 65-year-old retiring in 2026, the PBGC maximum guarantee for a straight-life annuity tops out at $7,789.77 per month, or $93,477 per year. Taking a lump sum and executing a rollover eliminates company risk entirely, shifting control of the assets away from the employer and directly into your hands.

Talk to a financial advisor

The Reddit poster’s pension is relatively modest, which makes the analysis more tractable. But if yours is considerably more generous, consulting a financial advisor is well worth the time. A good advisor can run the numbers for your specific situation, account for variables like your health history and other retirement income sources, and flag considerations that are easy to miss when crunching the math on your own.

Editor’s note: This pass corrects the high-yield savings rate range from “4.0% to 4.5%” to “around 4.0% to 4.2%” to reflect top rates available as of August 2026, names the three FOMC dissenters at the July 29, 2026 meeting, and clarifies that the SECURE 2.0 Act “super catch-up” of $11,250 applies to employer-sponsored plans rather than IRAs directly. The 2026 IRA contribution limits of $7,500 base and $8,600 for savers 50 and older are confirmed, as are the PBGC maximum guarantee figures and the 2.8% Social Security COLA.

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