2 hours ago
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July 26, 2026 — 5:01am
I am 61 years old and intend to retire this year. I have the choice of taking either a $1.753 million lump sum or a defined benefit pension of approximately $135,000 per year plus a $174,000 lump sum. My superannuation will be my sole source of retirement funding. My main concern is that the defined benefit pension is not indexed, so its purchasing power will decline over time with inflation.
Given my age, retirement plans and reliance on super for retirement income, how would you assess the trade-off between the pension and the lump sum?
Defined benefit pensions are very attractive in that the provider takes on all the investment risk. You are certainly right to be concerned about a lack of indexation, though, which is fairly unusual.
Ideally, get your financial planner to conduct financial modelling for you to understand the long-term difference between a lump sum invested in a “balanced” account-based pension, in comparison to your defined benefit option with no indexation.
A key issue is your estate planning and family situation. With a defined benefit pension, payments generally stop when you pass away, meaning there may be little or nothing left for your family.
Many defined benefit pensions will continue to pay a reduced benefit – often around two-thirds – to a spouse, but this depends on the specific scheme. For many people, the lack of capital remaining for beneficiaries is a strong reason to choose the lump sum instead. However, if you do not have children, your children are already financially secure, or they will be provided for through other assets such as the family home, the defined benefit pension may become relatively more attractive.
I turn 75 on November 21, 2026. I am still working part-time. At what point can I no longer make super contributions?
You would need to have made any voluntary super contributions by December 28, 2026. The requirement here is that contributions must be made by the 28th day of the month after the month that someone turns 75. Downsizer and employer superannuation contributions (non-voluntary) have no age limits.
After my husband passed away, I received compensation related to his death. I can either take a lump sum or a small pension or a combination of both. I’m 56. If I take the lump sum, it will pay off my mortgage completely.
Should I do this, or take a smaller lump sum to pay off some of the mortgage, and then have a smaller pension, or just keep the payment fully as a pension?
I would start by focusing on your need for income. If you are not already clear on your current rate of spending, take some time to review your bank statements and get some clarity here. Once your spending is known, will your current wages cover this?
If not, would the mortgage being cleared reduce your expenses such that you could now cover your living costs? Alternatively, would the pension payment be enough to plug your income versus expenses gap?
A debt-free home is great, but if you can’t afford the groceries, it’s not much good. Other considerations would be your health – a pension is more valuable the longer it runs for, and whether the pension will be indexed to inflation in the future.
This is a significant decision to make, and one that can’t be reversed, so I would certainly encourage you to obtain advice from a licensed financial planner.
Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the Financial Autonomy podcast. Questions to: [email protected]
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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