mr. furley
Footballguy
Short answer is "It depends"....not trying to give a cop-out answer but with a whole bunch of other details (current age, money invested into retirement, any expected inheritances, debt, etc), it's hard to pinpoint a perfect answer.
All things being equal, if you have the ability to take the lump sum and roll it into a current 401k (make damn sure you don't get taxed on taking the lump sum now, prior to rolling it), I would lean heavily towards that. Reason being is that the pension was geared for retirement, so use that money and keep it in retirement.
Furley - I would eliminate the "defer to 65, and gain interest at 5% a year. provided the company doesn't rip pensions like so many other companies/gov't agencies are doing" option right away. You can take that lump sum and invest it in a S&P 500 index fund and beat that overtime. (You would need to monitor as you get closer to retirement, to make sure you're not solely dependent on that money). Alternatively, you can use it to invest in a fund that is geared to your retirement age. In either way, you should be able to beat the 5% and you wouldn't have the risk of the company deleting the pensions.
If you don't have the option to roll it into a 401k, I would put it into a roth ira. If you're over the income limit, you can use the backdoor roth strategy. The challenge here (depending upon how much you're talking about) is that you'll only be able to shift $11k into this account each year ($5500 for you and $5500 for your spouse).
i've really got to talk to a professional
i've got 2 IRA's, a 401k (that's going to be punted in to orbit, which i have to roll to an IRA) and this pension that i will cash out and need to invest (probably in one of these IRA's).
only i don't have a single ####### clue how to do any of that