If You Have $620,000 Saved at 67 and a $90,000 Pension Buyout Decision, Here Is the Lump Sum Math

A former employer sends a one-page letter offering two choices: accept a $90,000 lump-sum payment today or continue receiving $720 per month for life. You are 67, single, retired from a manufacturing job, and already have $620,000 saved in a 401(k). With only a few weeks to decide, the choice may look obvious, but picking the wrong option could cost tens of thousands of dollars over the next two decades.

Situations like this come up regularly. In April, financial advisor Wes Moss discussed a nearly identical scenario on The Clark Howard Podcast, helping a caller named Alex evaluate a choice between a $58,000 lump sum and $411 per month in pension payments. Moss applied what he calls the 6% test to gauge whether the annuity offered sufficient value. The same framework applies here, though the dollar amounts are larger.

The situation in one block

• Age and household: 67, single, retired manufacturing worker
• Investable assets: $620,000 in a 401(k), plus Social Security
• The offer: $90,000 lump sum in exchange for waiving a $720/month vested pension ($8,640/year)
• Core tension: guaranteed lifetime income with no inflation protection versus a flexible pool of capital with market risk
• What is at stake: roughly $60,000 to $70,000 of lifetime value, depending on returns and longevity

The payback rate is the whole game

Divide the annual pension by the lump sum. $8,640 divided by $90,000 equals roughly 10%, meaning the pension pays back the lump-sum value in about ten years. That single ratio is the most important figure in this decision. A rate above roughly 8% is a generous offer for a 67-year-old; anything below 6% is a poor deal that strongly favors taking the cash.

At 10%, this offer lands in the middle. The employer is essentially telling you that surviving past age 77 or 78 is where the annuity begins to win. According to 2024 data from the CDC’s National Center for Health Statistics, life expectancy at age 65 for American men is about 18.4 additional years, and for women about 20.8 years. Adjusting for the two extra years already lived to 67, that puts the average breakeven well inside most people’s expected lifespan, so on longevity alone the annuity looks defensible.

Then factor in the return environment. The 10-year Treasury yield is running around 4.7%, giving retirees a genuine risk-free alternative for the first time in years. A balanced portfolio can realistically target 5% to 7% nominal returns over a decade. Run the math the employer is hoping you skip. Compounding $90,000 at 5% for 20 years produces roughly $238,800. The annuity delivers $172,800 nominal over the same window, leaving the lump sum ahead by about $66,000. Even at a conservative 3% return assumption, the lump sum still wins by roughly $11,000. Only below about 3% does the annuity come out ahead.

Here is the catch most retirees underweight. Core PCE, the Federal Reserve’s preferred inflation gauge, was running around 3.3% year-over-year as of spring 2026, well above the Fed’s 2% target. Private pensions almost never include a cost-of-living adjustment, so that $720 check will buy measurably less each year. Even at a relatively mild 2.5% annual inflation rate, twenty years of erosion cuts real purchasing power by roughly a third. At current inflation rates, the damage is faster.

Three paths, ranked honestly

1. Take the lump sum and direct-roll it to an IRA. This is the right call for most people in this exact scenario. With $620,000 already saved and Social Security covering baseline expenses, you do not need the $720 monthly check for day-to-day needs. The lump sum invested at 4% to 5% beats the annuity over a normal lifespan and outpaces inflation. Use a direct trustee-to-trustee rollover so the employer does not withhold 20% for taxes.
2. Keep the pension if guaranteed income is what helps you sleep. If market volatility would lead you to sit the $90,000 in cash earning nothing, the annuity wins by default. As Wes Moss points out, it is hard to guarantee yourself a high single-digit return, and a pension eliminates that risk entirely.
3. Skip any rollover into a commercial annuity. Some advisors suggest purchasing an income annuity inside an IRA with part of the lump sum. At today’s rates, that strategy typically pays out less than the original pension would have. Avoid it.

What to do this week

Request the actuarial assumptions and PBGC interest rates the plan used to calculate the $90,000 offer. If the plan’s discount rate is materially higher than current Treasury yields, the offer is undervaluing your pension and keeping the monthly check makes more sense. Confirm the plan’s PBGC insurance status at PBGC.gov, and read IRS Publication 575 before signing any rollover paperwork. The single most expensive mistake is accepting a check made out to you personally and triggering the mandatory 20% withholding. Make the rollover direct, and confirm with the receiving IRA custodian before the employer cuts any check.

Editor’s note: This article has been updated to reflect 2024 CDC life expectancy data showing men at 65 have 18.4 additional years and women 20.8 years; the 10-year Treasury yield has been revised to approximately 4.7% as of late July 2026; and the core PCE inflation figure has been corrected from “near the 2% target” to roughly 3.3% year-over-year as of spring 2026, materially above the Fed’s goal, which sharpens the pension’s lack-of-COLA risk discussed in the article.

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