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Sell My Pension for a Lump Sum?

David Goehring

Have you see those ads from the nice folks who want to buy your pension for cash? Who couldn’t use an extra six figures worth of money? But…how do you tell if that is a good deal?

Well, this would be a great time to be very, very careful. That guy who says he wants to buy your pension may be Mr. Potter knocking at your front door.

I saw an Internet ad directed towards seniors from “one of the nation's leaders in selling pension plans and structured early retirement buyouts that will meet your immediate needs and long term goals, and to fund you very quickly. Now you do not have to wait for your cash anymore. You can easily take advantage of the power in your pension and get a lump sum of cash, now, for your annuity.”

The ad shows an attractive silver haired couple smiling at us. It goes on to enumerate the “pros and cons” of selling your annuity for a lump sum.

Here’s the pitch: “If your pension is earning 5% and your credit cards are charging 28%, is not it time to do what makes sense? Or if you have the chance to earn 20% in a business opportunity, why keep the needed funds tied up?”

Warning – when the ad has to compare doing business with them to being better than paying 28% to a credit card company, you may be getting a sales pitch directed at desperate people.

And desperate people don’t often end up on the positive side of a business deal.

Which brings me to the movie classic It’s a Wonderful Life. Remember the flinty Mr. Potter, the slumlord banker who sought to take advantage of anyone down on his luck and in need of some money…at any price? In one scene, George Bailey’s Building and Loan experiences a financial panic and a voice shouts over the crowd “Potter bought my shares…at 50 cents on the dollar!”

That’s what you need to watch out for…getting a “Potter deal.”

I remember another such ad I read a few years ago. Their pitch was, “Some of you might be thinking, ‘Why in the world would I want to sell my pension?’

We like to answer this question with another question: How much is $50,000 worth to you right now, versus $96,000 over the next 8 years?”

Ummm…let’s see….about 25%. That’s what these guys earn when they buy your $1,000 a month pension for eight years and give you $50,000 up front.

Again…a Potter deal.

If you have a pension, and just have to get your hands on some money right now, better to check out other options. You might be able to get a home equity loan from a bank for, say, 5% (for example). Depending on how the math works out, you could pay the loan back out of your pension, and still have the pension once the loan is paid off.

Unfortunately, I find there are often two ingredients necessary for some of these arrangements to work: desperate ignorance and heartless greed.

Neither lead to a wonderful life.

Byron is a Certified Financial Planner and Managing Director of the Planning Group at Argent Advisors, Inc.
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