Jeffrey, who works for a Jewish communal agency, called with a dilemma regarding his pension fund: “My employer just offered a mandatory choice between taking a lump sum distribution now or an annuity paying a fixed amount each month. I don’t know which is best.”

I told Jeffrey that his confusion was normal. Choosing between a lump sum and monthly payout is challenging. It’s important to know the following:

• Pensions provide income during the beneficiary’s lifetime and sometimes during the lifetime of the beneficiary’s spouse, who may outlive the beneficiary.

• The financial strength of the pension fund represents a major consideration. Occasionally, pension funds — even well-regarded ones — fail. However, the Pension Benefit Guarantee Corp., a federal agency, in some cases, will disburse payments in place of terminated plans up to amounts set by law.

• The lump sum/annuity election is a one-time event. After you make your choice, you can’t change it.

“Is there some advantage in one over the other?” Jeffrey asked.

“No, there isn’t,” I said. The lump sum and monthly pension payment approaches are designed to provide equivalent benefits based on actuarial calculations. As a result, a choice depends on many considerations, bearing in mind that each person’s financial and life situation is different.

Here are three key considerations:

• Health and life expectancy. If you choose monthly payments, how long will it take to receive the amount you would have acquired in a lump sum? Do the math. Divide your monthly payment into the lump sum. For example, you’re offered $700 a month or $100,000. At $700 a month, it would take 142 months — or almost 12 years — to reach $100,000 in payouts. Your age and health will factor into your decision. But there’s a small catch. The math changes when you figure that you can invest the lump sum payment and earn income. So it might take longer to receive that $100,000 if you invest it — and your balance goes up, not down.

• Your appetite for risk. Here another point comes into play. Receive a lump sum payment, and you assume all investment risk. How do you determine your appetite for risk? Start by examining your reaction to previous stock market declines — think back to 2001 and 2008-9 — and recent market instability. Did you feel uncomfortable and anxious? Lose sleep? Did you sell stocks at the wrong time? If your account declines in value will you regret your decision to take the annuity?

• Your financial plan. Do you have a financial plan? You need to figure out your spending in retirement as best you can, and identify the sources of income to make sure your funds last. How does your choice of pension payment fit into your plan? If you’re married, you have to make provisions to support your surviving spouse. Ask yourself how a lump sum versus annuity might fit into your Social Security claiming strategy (another important matter). Annuities don’t offer cost of living increases. Social Security does.

“So inflation is an important consideration,” Jeffrey said.

“Good observation,” I responded. A fixed annuity provides the same payment each month. Inflation, even at today’s low rate, erodes purchasing power. Further, some costs defy low inflation. Health care and college tuition are two. You need to determine how you’ll hedge against inflation.

Be aware that many annuities offer choices of payouts. Which is best? The highest payout is based only on the beneficiary’s life expectancy. It ends with the beneficiary’s death; the surviving spouse gets nothing. If you’re single, this represents a choice to seriously consider. But other factors come into play. For example, consider when you want to start receiving payments. Undoubtedly, there will be an age at which you must start receiving payments. Your financial plan will guide you.

“I never realized choosing between two options could be so complicated,” Jeffrey said. “I’m glad I have a financial adviser.”

These decisions are tough to make on your own. If you have a financial adviser, consult with him or her about your choices. Preferably your adviser will have a financial-planning background and not just offer investment management, which is anything but comprehensive. I also advised Jeffrey to remember that his choice is all about him and his family. Decisions made by friends, neighbors and fellow workers are irrelevant. A choice you can live with must reflect your particular circumstances and personality.

“If I’ve learned anything,” said Jeffrey as we concluded, “there’s no one-size-fits-all approach.”

I agreed heartily.

Ira Fateman is a certified financial planner at SAS in San Francisco who conducts free personal finance workshops for Hebrew Free Loan (www.hflasf.org/financialfitness). Reach him at [email protected].