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?

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. A 401(k) match, if you get one at all, is often the best a worker can hope for. I am self-employed, so I get none of that. Then again, setting my own hours and occasionally working from the beach has its own rewards.

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 thinking it through.

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. The math is straightforward: the poster can receive $100 a month indefinitely or accept $24,000 up front. At that ratio, the break-even point is 20 years out. 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 inflation quietly chips away at it year after year.

Other factors matter too. A monthly payout delivers a guaranteed income stream for as long as you live, including if you outlive your best projections. That predictability can provide genuine peace of mind. A lump sum, by contrast, gives you the opportunity to invest and grow the money, and it can also address a near-term need, such as funding a dream vacation while your health is still good.

The math gets more complicated

The break-even calculation is a useful starting point, but 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, with the vote coming in at 9-3. Three regional bank presidents, Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, and Lorie Logan of Dallas, dissented in favor of a rate hike. Markets now price in one to 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 have been offering up to 4.21% APY as of mid-September 2026, though rates have been drifting slightly lower since June. At 4.0%, a $24,000 lump sum generates roughly $960 a year in interest, or $80 a month, without touching the principal. At the current top rate of 4.21%, that rises to about $1,010 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 totals $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 that advantage. For 2026, the IRA contribution limit is $7,500 for most savers, with a $1,100 catch-up for those 50 and older, bringing the total to $8,600. Savers enrolled in an employer-sponsored plan such as a 401(k), 403(b), or 457 who fall between ages 60 and 63 can also take advantage of a SECURE 2.0 Act “super catch-up” that raises the workplace-plan catch-up ceiling to $11,250 for that age window. Rolling over a lump sum and pairing it 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, the smarter move is a Direct Rollover into a Traditional IRA. That transfer 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. Pass away early, and 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 retain control of the wealth you worked for.

Company solvency and pension insurance

A $100 monthly obligation is modest, but retirees with larger pensions face a real risk if their former employer goes bankrupt. Pensions are insured through the federal Pension Benefit Guaranty Corporation (PBGC), though 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, placing control of the assets directly in your hands rather than those of your former employer.

Talk to a financial advisor

The Reddit poster’s pension is relatively modest, which makes the analysis more tractable. But if your pension is considerably more generous, a conversation with a qualified 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 income sources in retirement, and surface considerations that are easy to miss when crunching the math on your own.

Editor’s note: This pass updates the high-yield savings rate to reflect that top accounts were offering up to 4.21% APY as of mid-September 2026 (up from the previous “4.0% to 4.2%” range), and notes that rates have been trending slightly lower since June 2026. The Social Security 2026 COLA of 2.8%, the 2026 PBGC maximum guarantee of $7,789.77 per month for a 65-year-old, and the 2026 IRA contribution limits of $7,500 base and $8,600 for savers 50 and older are all confirmed from official sources.

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