Q. In a recent column, you recommend (almost) always taking a pension and not a lump sum. I could understand not putting the pension lump sum at risk, but it seems to me that taking a fixed pension over, say, a 25-year retirement has some problems. First, since (at least in my case) there are no cost of living increases, the pension checks will remain fixed and not keep up with inflation. Second, if something should happen to me and my spouse, the pension does not pay into our estate and benefit our heirs.

So I would favor taking the lump sum and investing it in very safe assets, designed to produce income to us similar to what the monthly pension checks would have been.

Am I missing something? ---P.K., by email from Tucson, AZ

A. I know it is tempting to take the cash and assume that you will be able to invest it for a higher return and better annual income. But the brute fact is that it is difficult and expensive for the “retail” investor. It would be particularly difficult in the current low interest rate environment.

You also may not understand the benefit that a high and guaranteed income stream provides for the rest of your portfolio.

So let me give you an example. Suppose you have $100,000 in your 401(k) plan. You also have a pension cash offer of $100,000. That pension offer would buy an immediate joint life annuity for you and your spouse. Assuming a 100 percent survivor benefit to your spouse, the monthly income would be $569 according to www.immediateannuities.com. That’s $6,828 a year, or a cash flow return of 6.8 percent.

You would not find a safe way, today, to get that return. Remember, the yield on a 30 year Treasury is currently running at only 3 percent according to www.bloomberg.com. Meanwhile, that high cash return will allow you to draw very little from the $100,000 in your 401(k) portfolio. If, for instance, you decided to have an overall safe withdrawal rate of 4 percent from your entire portfolio, having half of it in the pension/life annuity would allow you to draw at only 1.2 percent ($1,200 a year) from the 401(k) account.

The greatest danger to retirees is that they suffer a series of losses in their first years of retirement. But a 1.2 percent withdrawal rate is lower than the dividend yield of many funds these days so you could go for years before you would need to sell shares at a depressed price. As a consequence, committing to a pension/life annuity works to make it more likely that you won’t run out of money. Several studies have confirmed this idea.

Q. Situation: Retired couple very soon to be 68. Our income comes from two Social Security checks and a monthly check from an investment fund. The investment check is for $700 a month.
And that’s the problem. We have lost $43,000 over the last year. At the beginning of the year the value of our investment account was $116,000.

Question: Do you stay and watch the rest vanish? Or do you pull it out and put it in a CD for 12 to 18 months and get banged by the "FED’s” in taxes. What is wrong with this picture?
----G.C., by email from Texas

A. The first thing wrong with the picture is that your initial withdrawal rate was high. By taking $700 a month from a $116,000 account you were taking over 7 percent a year. In most markets, that’s a dangerous withdrawal rate. When you take that much you multiply the effect of a market decline because you sell your investments into a sinking market. Your original withdrawal level should have been more like 4 percent or $400 a month.

So I suggest that you reduce your withdrawal, now, to a more sustainable level. By the usual rules of thumb that would be 4 percent of your current account value. After this decline, however, research indicates that you can safely withdraw about 5.5 percent from a market with low valuations. (See my recent columns on this subject.) That would be about $300 a month.

Rather than moving everything from the fund into a CD I suggest that you put two years of your new withdrawal rate, or about $7,000, in a money market account. Leave the balance of your investment as is. No one can tell the future, but the decline since October 2007 has been one for the record books.