About 15% of private-sector workers have access to a traditional pension, which they often are able to take as a lump sum instead of an annuity.
For anyone edging close to a retirement date, be aware that the higher the interest rate used to calculate a lump sum, the smaller the amount.
On the other hand, pension annuities typically do not come with cost-of-living adjustments, making them susceptible to inflation risk.
Here’s what to know.

When you’re nearing retirement and are due a pension, one of the trickiest decisions can be whether to take your benefits as a lump sum or as an annuity over time.

For those leaning toward an upfront payment, the choice may be more complicated now due to rising interest rates. In simple terms, the higher the rate used to calculate a lump sum — to make it actuarially equivalent to the annuity — the smaller your payout.

“Pension plan participants definitely want to consider how they will be impacted,” said Wayne Titus, a CPA and managing director at Savant Wealth Management in Plymouth, Michigan.

Roughly 15% of all private-sector workers have access to a traditional pension, which generally is funded by the company and sometimes employees, and provides monthly payments for the rest of the retiree’s life. Most workers (65%) are at employers that offer 401(k) plans — which are largely funded by workers.

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