Susan Tompor

USA TODAY

Take the lump sum? Or settle on the slow-but-steady monthly payout?

No, we're not talking about winning a Powerball jackpot or some other winning lottery ticket. We're talking about what to do if your company or former employer actually has a traditional pension, not just a 401(k) plan, and offers you a lump sum if you give up the chance to receive a monthly pension check.

These days, figuring out what to do with your pension can be the real gamble.

The Consumer Financial Protection Bureau has released a guide relating to lump-sum payouts as a way to help workers who face the either-or option of the payout or keeping the traditional monthly payment.

CFPB Director Richard Cordray noted in a statement that consumers can face a "difficult one-time choice to either take their pension payments in a lump sum or as a lifetime income stream."

The big risk, of course, is will you run out of money?

Powerball or pensions, the risk of taking a lump sum remains that you'd take the cash and blow it on big steaks, bubbly and Bugattis, and yes, every other trapping that comes with living the life of the Big Spender.

Ric Edelman, chairman and CEO of Edelman Financial Services, a large national financial planning firm with two offices in metro Detroit, said the attraction of taking the lump sum is that you have control over the money. But if you're a spendthrift and you tend to be irresponsible with money, you could be better off taking the monthly payout or setting up some allowance system, he said.

Leon LaBrecque, CEO of LJPR, a fee-only financial adviser in Troy, has advised many Michigan retirees over the years on some lump-sum offers, such as ones made to Ford Motor and General Motors salary retirees a few years ago.

Nationwide, several big name companies have offered lump-sum pension payouts to former employees and others, according to the Pension Rights Center.

When does a lump sum make sense?

Say you're in bad health and you are not married and do not have children. A lump sum could look far more attractive, LaBrecque said.

When do you take a monthly payout?

You're in excellent health, have other extra money to spend anyway and have no one to leave a lump sum payment to when you die, LaBrecque said.

Key issues: Your health and longevity, plus your need for financial security. You'd also want to run numbers and see what you'd pay for a regular annuity to get that guaranteed stream of income.

"How much do you need for certain?" LaBrecque said. "If the monthly pension plus your Social Security covers that, take the guaranteed payments."

Anyone who is offered a lump sum versus a monthly pension needs to review the tax implications. How much money would be withheld from the lump sum for taxes? Would you owe more money when you filed your return? Some retirees take action to defer income taxes on that lump sum by rolling over the money into a qualified retirement account.

Pension experts say thousands of consumers each year can face this complex math problem, especially as companies try to unload their pension liabilities.

The U.S. Treasury Department and the Internal Revenue Service announced restrictionslast July that would prevent plan sponsors from making lump-sum offers to retirees already receiving monthly pension checks, unless prior to the date of the IRS announcement, the plan sponsor had already adopted, announced or had received a specific ruling or determination from the IRS regarding such a lump-sum window for retirees.

But other lump-sum options can continue.

The U.S. Government Accountability Office noted in one report that it had identified 22 plan sponsors that offered lump-sum windows in 2012 alone, covering about 498,000 participants and resulting in lump-sum payouts totaling more than $9.25 billion.

The GAO report issued in 2015 noted that most of these payouts went to participants who had separated from employment and were not yet retired, but some went to retirees already receiving pension benefits.

The risks are substantial.

"Participants potentially face a reduction in their retirement assets when they accept a lump-sum offer," the GAO report noted.

"The amount of the lump-sum payment may be less than what it would cost in the retail market to replace the plan’s benefit because the mortality and interest rates used by retail market insurers are different from the rates used by sponsors, particularly when calculating lump sums for younger participants and women," the GAO report said.

While some consumers might opt for that lump sum because they fear that their plan sponsor would default and the pension would end, that's not always a legitimate fear. The GAO study noted that some lump-sum payout packages do not fully explain what benefits might be protected in the future.

"Few of the packets informed participants about the benefit protections they would keep by staying in their employer’s plan — full or partial protections provided by the Pension Benefit Guaranty Corporation, the agency that insures defined benefit pensions when a sponsor defaults," the GAO study said.

Some experts would like to see more disclosures required to people who receive any lump-sum offers.

You'd want to take time researching your own situation and needs. How much money would your spouse receive as a survivor if you take a monthly pension and then die?

What are your investment skills? How much would you end up paying someone else to invest all that money?

Another issue, and this one applies to lottery tickets and Powerball winnings, too: How good will you be at hanging up on the fraudsters?

The Consumer Financial Protection Bureau notes that many times older consumers are often targets of scam artists, who might promise phony investment strategies with high returns and low risks.

The CFPB guide also notes that you'd want to double check the amount of any lump-sum payout, too, as mistakes can happen. The lump sum that's paid out is based on a variety of factors, including your age, years of work, earnings history, terms of your plan and taxes withheld.

The U.S. Department of Labor lists the 10 most common causes of errors in pension calculations on its website. It could be something as simple as the wrong birth date or Social Security number was used for the calculation. Or maybe you failed to update the personnel office that you got married or divorced.

Complicated questions and issues don't just come to surface when your employer makes a lump-sum offer. Consumers also are being contacted by outsiders who suggest that you could want to take an immediate lump sum for your pension in exchange for the rights to some or all of the monthly payments the person would otherwise receive in the future. Federal regulators, including the Securities and Exchange Commission, have issued warnings about such pension-related settlements.

Yes, you might think you just hit something like the Powerball when your old employer offers several thousand dollars upfront if you give up a stream of payments in retirement. But you could lose out big time, if you don't invest the money well or get mixed up with the wrong financial products.

Contact Susan Tompor: 313-222-8876 or stompor@freepress.com. Follow Susan on Twitter @Tompor