I'm retiring soon with a solid nest egg — so should I take my pension in a lump sum or monthly payments with no COLA?

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According to the Pension Rights Center, only around 18% of Americans participate in a defined benefit pension plan at work (1). Defined benefit pension plans can be valuable because you typically get a set benefit guaranteed to last for the rest of your life.

However, pensions can be structured in different ways, and sometimes you have a choice about how to take the funds.

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For example, let’s say we have a worker named Alexander who has been at his job for 30 years and now has earned a generous pension. He has plenty of money saved for retirement in other accounts with plans to retire soon. Alexander can either take his pension as an investable lump sum or as regular monthly payments.

But his pension does not offer cost-of-living adjustments (COLAs), and he thinks he can likely earn 6% per year if he takes the money and invests it. So, should Alexander accept the monthly payments (which don’t get bigger over time) or should he take the cash and invest?

Here are a few key questions that can shine a light on the best course of action.

What happens to the pension if he dies?

The first big question is what would happen to the pension if he dies.

If the pension payments stop right away, this is a strong reason to take the lump-sum payment and invest the money. Once he’s received the funds and deposited them into an investment account, he has an asset he can leave to his spouse, children or whomever he likes.

If he doesn’t take the money and sticks with monthly payments that stop when he dies, he’s gambling on living a long time. If he retires and dies in two months or even in a couple of years, his family is left with nothing.

On the other hand, if the pension is guaranteed to pay out for a certain number of years, or if monthly payments transfer to his spouse after death, then the pension becomes more valuable because there’s a reduced chance of benefits ending early if Alexander has bad luck.

Plus, not only is it more likely that the pension will pay out for a long time, but the guaranteed monthly income coming from it could give those left behind more financial security.

If you’re in a similar position, working with a financial advisor could help you decide whether sticking with the pension or taking a lump-sum payout makes more sense for your long-term goals. That choice can have a major impact on your retirement strategy — especially for those with more than $250,000 set aside — because it could shape everything from your investment income to how much flexibility you have later in life.

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Read More: Here’s the average income of Americans by age in 2026. Are you falling behind?

How confident is he as an investor?

The next big question is how confident Alexander is as an investor.

A pension is a sure thing, with no question that the money will keep coming. Investing creates added risk, and there’s always a potential for losses.

There’s also a sequence of returns risk to think about. If Alexander takes his lump sum payment, invests the money and the market goes down right away, he could see a big part of his retirement savings disappear. This makes it harder for his account to earn the desired returns, since he now has a smaller balance.

If he needs to begin making withdrawals from the account during a downturn, Alexander would also lock in his losses, and recovering from the poor market timing could become even harder.

If he has other income to live on and can avoid selling at a bad time, this could mitigate the risk. However, if he’s rolling the pension money into an IRA, he has required minimum distributions to consider and will have to start taking money out at some point, whether he needs it or not.

Of course, he could also lose all of the money if he makes bad investments. But he can limit the likelihood of that happening by putting the pension money into ETFs tracking financial indexes like an S&P fund that has a reliable history of strong returns.

Invest your spare change in an index ETF

Index investing allows you to spread your money across hundreds of companies at once, helping reduce the impact of any single stock performing poorly. This is one of the safer ways to invest in markets since the risk is distributed across a variety of companies in different industries or sectors.

Plus, regularly investing smaller amounts over time can help smooth out market volatility through dollar-cost averaging.

Platforms like Acorns make it easy to invest in safer bets like index fund ETFs, and can even help turn your spare change from everyday purchases into an investment opportunity.

How it works is simple: Just link your debit and credit cards, then Acorns will round each purchase you make up to the nearest dollar. Then every purchase you make becomes a micro-investment in your future.

From here, your spare change goes into a diversified portfolio of ETFs managed by experts at leading investment firms such as BlackRock and Vanguard — allowing your cash to work behind the scenes without you having to lift a finger.

With Acorns, you can invest in an S&P 500 ETF with as little as $5 — and, if you sign up today and set up a recurring investment, Acorns will add a $20 bonus. You can also increase your monthly contribution if you find the round-ups aren’t quite enough for your financial goals.

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But this low and slow method of investing might not be enough on its own — especially if you’re trying to make up for lost time. It’s one thing to set aside $100 a week for 30-years starting in your 20s. Catching up in your late 30s or early 40s is something else entirely, and may require taking on more risk with index fund investing acting as your backstop.

Here, the key is making informed decisions rather than emotional ones. Retirement money often has to last decades, which means blindly chasing hot stocks or speculative trends can backfire if markets suddenly turn.

That’s where platforms such as Moby come in. Founded by former hedge fund analysts, the platform helps investors uncover potentially undervalued companies with room for long-term growth — offering research-backed insights that can help take some of the guesswork out of investing.

Moby’s success speaks for itself. In four years, and across almost 400 stock picks, their recommendations have beaten the S&P 500 by almost 12% on average.

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How much of an impact will inflation have?

Finally, it’s important to consider how big an impact inflation will have on the value of the pension.

The reality is, prices rise all the time, and inflation has surged recently, with prices up 3.8% year-over-year (not seasonally adjusted) according to Bureau of Labor Statistics data released May 12, 2026 (5).

Even if inflation does cool and returns to the Federal Reserve’s 2% target inflation rate, this still means Alexander’s funds will lose buying power every year because his pension has no cost-of-living adjustment. And small yearly losses can add up to a lot over time.

Assuming a conservative 2% inflation rate, at the end of 20 years, you’d need $2,971.89 to buy the same amount as a $2,000 pension check would buy today. Without a COLA, Alexander wouldn’t have that extra $971, so his pension money won’t go nearly as far.

If he’d taken a lump sum and invested the money, his investment returns could help minimize the impact of inflation or even mitigate it entirely if his ROI is well above the inflation rate.

That’s a big reason many financial professionals emphasize asset allocation in retirement planning. A well-diversified mix of investments can help retirees preserve purchasing power instead of watching it slowly erode year after year.

After all, retirement isn’t just about generating income today. It’s about making sure that the money you have now can support your lifestyle decades down the road.

One way to fight inflation is to dedicate some of your portfolio to inflation-resistant assets with lower market correlation. Gold is one option favoured by many investors, as it tends to store value better than stocks and bonds during a downturn.

What’s more, unlike paper currency, gold isn’t directly tied to the strength of any single economy or central bank policy decision, which is why it’s often viewed as a store of value during inflationary periods or broader market uncertainty.

One way to invest in gold that can also provide significant tax advantages is to open a gold IRA with Goldco, which allows you to invest in physical gold and silver.

With a minimum purchase of $10,000, Goldco offers free shipping and access to a library of retirement resources. Plus, the company will match up to 10% of qualified purchases in free silver.

Still trying to figure out if gold belongs in your portfolio? Download your free gold and silver information guide today to learn more and make sure it’s right for you.

Consider the trade-offs

Ultimately, Alexander will have to decide which risks he wants to take.

Getting the pension benefit each month protects against longevity risk, or the risk of outliving his savings, as well as against sequence of returns risk since he gets a guaranteed income from his pension for life. However, he does risk dying young and the value of the pension disappearing, and he’ll lose ground due to inflation.

Taking the lump sum introduces the risk that he’ll lose the money by investing it, and that his pension won’t be a support source for life. Careful investing can limit this risk, especially if he doesn’t need the money immediately due to his other savings, and he can just invest it and leave it to grow for a while.

Since there are pros and cons to both solutions, talking with a financial advisor may make sense so Alexander can work with a professional to think through the pros and cons and make the choice that’s best for his needs.

— With files from Christy Bieber