A caller named Alex asked Wes Moss a question that lands in millions of mailboxes every year: take a $58,000 lump sum pension or $411 a month for life. Moss pulled out a single calculation he calls the 6% test, ran it on air, and pointed Alex toward the monthly check. The math behind that recommendation is what most retirees never see, and it should drive your own decision if your employer hands you a similar choice sheet.
I have studied retirement income mechanics for years, and the lump sum versus annuity question is where smart people make the most expensive mistakes. The 6% test fixes that by converting a confusing offer into a single number you can compare to anything else in your portfolio.
The quote and the math
On the April 21, 2026 episode of Ask An Advisor With Wes Moss, Moss told Alex: “Let’s do some math, Alex. It’s the 6% test is what we’re looking here. That’s kind of my starting point to say whether you take the monthly amount, the pension or the lump sum.”
Then he ran it. $411 times 12 is $4,932 a year. Divide that annual payment by the $58,000 lump sum offer and you get an effective payout rate. Moss called it on air: “Ooh, 8.5%. Wow, that’s pretty strong.”
That 8.5% is the only number that matters in the first cut. It tells you what return the lump sum would need to generate every year for the rest of your life just to match what the pension is already promising. Moss’s conclusion: “Hard to guarantee, quote, guarantee yourself eight and a half percent.” Take the monthly payment.
Why 6% is the line
The threshold is anchored to what safe money pays right now. The 10-year Treasury yield sits near 4.6%, near the top of its 12-month range of roughly 4% to 4.7%. The Fed funds rate is 3.75% after a cutting cycle that started late last year. Investment-grade corporate bonds yield more than Treasuries, but not 6%, and certainly not 8.5%.
When a pension offer back-solves to 6% or higher, you are getting a payout that beats anything a similarly safe investment can deliver. Above 6%, the monthly check usually wins. Below 6%, the lump sum becomes competitive because you can invest the cash and match the income with margin to spare.
The verdict, and what flips it
For Alex’s numbers, the monthly payment is the right answer. To replicate $4,932 a year on $58,000 indefinitely, you would need to earn 8.5% net of fees and taxes every year with no sequence-of-returns risk. The S&P 500’s long-run average gets you close on paper, but variance will eat you alive if a bad year lines up with your withdrawals.
The variable that flips this decision is the payout rate itself. Say your sheet shows a $300,000 lump sum or $1,250 a month for life. Annualize the payment to $15,000, divide by $300,000, and you get 5%. That is below the 6% line and below what you can earn in a laddered Treasury portfolio today. The lump sum becomes the stronger play, especially if you have other guaranteed income from Social Security.
One protection Moss insists on if you take the monthly route: “Make sure they have at least a minimum amount of years that they get paid out so that at least you get your money back.” That is the period-certain election. Without it, an early death hands the unpaid balance back to the plan. A joint-and-survivor option does the same job for a spouse.
What to do with your own offer
- Pull your pension statement and find two numbers: the single-life monthly benefit and the lump sum cash value.
- Multiply the monthly figure by 12, divide by the lump sum, and write down the percentage. That is your payout rate.
- Compare it to 6%. Above 6%, the monthly payment is hard to beat with safe investments. Below 6%, model what the lump sum could earn in a conservative portfolio and compare the income streams side by side.
- If you lean toward the monthly check, elect a period-certain or joint-and-survivor option so your heirs are protected if you die early.
- Layer in taxes. Pension income is ordinary income, and a lump sum rolled to an IRA grows tax-deferred but feeds into required minimum distributions starting later in retirement.
Alex’s 8.5% is the kind of payout rate that should make you pause and re-read the statement. Most offers will not be that generous. Run the 6% test on yours before the election deadline passes, because once you sign, that choice is permanent.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks