As an employee, though, which is in your best interest?

For example, say that your employer has offered you two options. You can take $1,200 per month for the rest of your life, or you can collect a $150,000 lump sum payout. Which should you take?

The answer here depends on a lot of factors, including how the math breaks down.

If you are seeking reliability, take the monthly payment. As discussed below, under the right circumstances you might get more money from the lump sum payment, but that will depend on market returns and there’s an element of risk to any investments. If you take the monthly pension, your payments are mostly secure and your budgeting and investing needs may be simpler.

If, instead, you’re trying to maximize your retirement income the right choice will depend a lot on your assumptions and your projected investment outcomes.

An investor looking for safer investments, generally in the bond market, will probably make more money taking the monthly payments. However an investor who can successfully manage a more aggressive position, perhaps with a mixed portfolio or an S&P 500 index fund, will probably make more with the lump sum.

To understand this, let’s assume that you retire at age 67 and have the average life expectancy of around 85. And let’s assume that your pension is fixed, with no inflation adjustments. Using Schwab’s pension calculator, you would need to invest your $150,000 at a 7.03% rate of return just to match the income of your $1,200 monthly payments over your life expectancy.

This means that you would need a reliable return of around 8% in order to make the lump sum payment meaningfully more valuable than the monthly payments and still be able to use some it in the meantime. This is certainly possible. In fact, 8% is about in line with the average return on a mixed bond/equities portfolio. And if you have the flexibility to manage volatility, you could do even better with a pure S&P 500 fund’s average 10% to 11% returns.

But it would mean managing the volatility and risk that comes with equity investment. In particular, you would need a plan for income during down years so that sequence risk doesn’t erode the value of your portfolio. For this reason, retirees prefer to shift their investments toward security in retirement. This tends to lean toward bond-heavy portfolios, which generally issue returns between 4% and 6%. In that case, the $1,200 monthly payment would likely provide both better security and more income.

A fiduciary financial advisor can help you do the math in your personal situation. Get matched with up to three advisors for free.

A quiet headline here is inflation, because it can cut both ways.

Many pensions are indexed for at least some degree of inflation, known as a “cost of living adjustment.” They might use the same process as Social Security, issuing an actual inflation-adjustment each year, or they might simply increase payments by a flat percentage.

In this case, with a starting payment of $1,200 per month, let’s say that your employer has a simple benchmark inflation index. They increase your pension by 2% each year to keep it in line with the Federal Reserve’s target rate.

In that case, again based on Schwab’s calculator, you would need to invest your $150,000 at a minimum 9.03% return just to generate the same income as your monthly pension. You would need a reliable 10% rate of return to significantly beat that $1,200-indexed payment.

Now, again, this is possible. Ten percent is roughly the S&P 500’s average annual rate of return. However, you would need to keep your money entirely in equities, which means managing the volatility of market dips and rushes.

This is fine during your working life, when you can simply leave that money alone to ride out a bear market. (Which is exactly what you should do. Ignore all of the very bad financial advice suggesting that you have “lost” money from your 401(k) during a downturn.) In retirement it’s a different story. Since managing sequence risk is far more difficult when you rely on this money for income, most households would generally get more money and security by taking the $1,200 per month.

On the other hand, say that your monthly pension has no inflation index. In that case, you will receive a fixed $1,200 per month. This will expose your income to inflation risks in a way that taking the lump sum will not. With the lump sum, you are more likely to receive inflation-indexed growth. This will help protect your household from creeping costs, although again at the expense of needing fairly significant returns to keep up with the lost pension income.

A financial advisor can help you understand the implications of your employer’s specific pension plan. Talk to a financial advisor today.

If your employer offers a pension, they will frequently give you two options: a lifetime of monthly payments or a lump-sum at retirement. Seek good financial advice as you choose between those two options, because the correct answer will depend a lot on your approach to investment and your personal situation.

• If your employer doesn’t offer a pension fund, you can also try to build one… sort of. Annuities are an asset that can provide a guaranteed income for life, which has led them to be called “private pensions.” There are risks to this asset class, like every other, but they can provide the kind of security of a traditional pension. 

• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

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