Get free help preparing your taxes from AARP Foundation Tax-Aide. Find a location

AARP The Magazine

The Great Pension Sell-Off

Should you take a lump sum or an insurer's annuity?

With an annuity, retirees' security is tied to the insurance company. If that insurer fails, each state has a guaranty association with its own coverage limits. Maximum lifetime coverage ranges from $100,000 to $500,000 and follows the rules of your particular annuity.

"Each state is a little different," says Chalfie, of AARP. "It's a little bit of the Wild West."

Both Verizon and GM bought annuities from Newark, New Jersey-based Prudential Insurance Company of America. "Prudential is a huge, very profitable company. This should not be a problem," Jones says. Then again, "as you know from 2008, a lot of too-big-to-fail companies failed."

Also, nothing prevents Prudential from selling its annuity business to a weaker insurer, Jones adds.

Despite these concerns, not everyone is unhappy.

Richard Schwaller of Novi, Michigan, says he was "ready to dance with joy" when he heard GM was buying a Prudential annuity. The 84-year-old, who retired from GM in 1985, says he believes his benefits are more secure with Prudential than with the automaker, which has chipped away at retirees' other benefits.

"These are just the sorts of transactions that Prudential exists for," says Dylan Tyson, senior vice president responsible for Prudential's pension-risk-transfer business. Prudential has been in this business since 1928, he points out, and hasn't missed a payment to pensioners yet.

Retiree advocates worry more about lump sums than annuities.

A pensioner receiving a lump sum may make bad investments or use the funds to erase current debts, leaving little or no money for later years, advocates say. Retirees may also be pressured to take a lump sum by children who can inherit cash but not pensions, or by financial advisers wanting to earn fees for managing the money.

"It's almost never better for someone to take a lump sum and give up the monthly benefits," unless you aren't likely to live long, says Nancy Hwa, with the Pension Rights Center in Washington, D.C.

Jerry Rosin, 57, of Menasha, Wisconsin, is among 10,000 former Kimberly-Clark employees offered cash to exit their pensions in 2012.

"At first blush, it looked kind of tempting," says Rosin. After crunching the numbers, he decided to stick with the pension.

Member Discounts! Discover great deals and saving through AARP membership

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts


Please wait...

progress bar, please wait

Tell Us WhatYou Think

Please leave your comment below.


Your Work

Discounts & Benefits

From companies that meet the high standards of service and quality set by AARP.

UPS Store membership discount aarp benefits

Members save 15% on eligible products/services, 5% on UPS shipping at The UPS Store®.

membership adt

Small business owners save 20% on new installation of any new ADT security system.

Man using cell phone outdoors

Members save on monthly service & usage fees and get free activation with Consumer Cellular.

Member Benefits

Renew today! Members receive exclusive member benefits & affect social change.