Wondering if you should commute your defined benefit pension or take the monthly payout?

Learn how two retirees made very different choices and what factors might matter most in your decision.

If you’ve recently left a job with a defined benefit (DB) pension plan, you may be facing one of the biggest financial decisions of your life:

Should I commute my pension or take the guaranteed monthly payments?

This choice isn’t just about numbers. It’s about your income needs, your health, your comfort with investing and your long-term goals. While the lump sum commuted value can be substantial, it also comes with added responsibilities.

Below are two real-life examples from my practice (with names and details changed for privacy) that show how the “right” answer isn’t always found on a spreadsheet.

What Does It Mean to Commute a Pension?

To “commute” your pension means choosing a lump sum payout today instead of guaranteed monthly payments for life. Most of that lump sum goes into a Locked-In Retirement Account (LIRA), and you’ll need to manage this account, either on your own or with professional help, so it lasts as long as you do.

Real Scenario #1: The Value of Stable Income in Retirement

Kathy, 60, had worked at a Crown corporation for decades and was offered early retirement. She could receive:

• $42,000 per year, indexed to inflation, or
• $875,000 as a lump sum.

Her husband Marc, 62, is self-employed and has no pension, but reasonable savings.

Initially, the commuted value looked like the better deal. It gave them flexibility, estate planning options, and the ability to draw strategically from multiple accounts. (You can read more about DIY financial planning here: Should You DIY Your Financial Planning?).

But Kathy was clear on what mattered most: predictability.

With Marc’s variable income, she wanted at least one rock-solid stream of retirement income they could count on. Despite the potential upside of commuting, she chose the monthly pension. It felt like a more stable foundation for their retirement lifestyle.

Real Scenario #2: A Legacy-Minded Single Retiree

Martin, 63, is a single father with two adult children. He was offered:

• A $38,000 annual pension, or
• A $790,000 lump sum.

Martin’s main concern? Leaving a legacy.

If he took the pension, the payments would end when he passed. If he commuted, anything left in the LIRA could go to his estate.

We built a plan using modest drawdowns, with CPP starting at 65 and OAS delayed to 70 for a higher payout. (Here’s a helpful article if you’re curious about How Much Will CPP and OAS Really Cover in Retirement?).

This allowed Martin to cover his lifestyle costs and preserve a portion of his savings for his children. He chose to commute, not because he loved managing investments, but because it aligned with his values.

How to Decide: Pension or Commuted Value?

There’s no single right answer. But here are key questions to consider:

✅ Do you want predictability or flexibility?
A monthly pension offers structured income. Commuting gives you more control—but also more responsibility.

✅ What’s your health and longevity outlook?
If you’re healthy and have longevity in your family, a pension could offer strong lifetime value. But a shorter life expectancy may favour a lump sum.

✅ Do you have estate planning goals?
Only the commuted value can leave a financial legacy, and only if it’s managed effectively.

✅ Are you comfortable managing money?
DIY investors may appreciate the control, while others may prefer the simplicity of a guaranteed monthly cheque.

✅ What other income sources do you have?
Pension decisions don’t happen in a vacuum. Consider how CPP, OAS, RRSPs, and TFSAs fit into your overall retirement income strategy.

Final Thoughts

Commuting a pension or taking the monthly income isn’t just a math problem. It’s a deeply personal decision that deserves thoughtful reflection.

Whether your priorities lean toward income stability, estate value, or flexibility in how you spend and invest, the key is understanding what matters most to you and building a plan around that.

If you’re facing this decision and would like help sorting through the trade-offs, I’d be happy to walk through your situation with the same clarity and care I offered Kathy and Martin.

P.S. If this post helped simplify your thinking, or reminded you of someone navigating a similar decision, feel free to share it.

David Martin is an Advice-Only Financial Planner in Halifax NS, serving Atlantic Canada DIY investors and business owners.

I help DIY investors in Atlantic Canada gain financial confidence.  Contact me today to schedule a free consultation and start your journey towards financial independence.

Connect with David on LinkedIn.

Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment and tax-related decisions. You should seek independent financial advice from a financial advisor near you.