Getting quick cash can feel like a lifesaver when you’re facing bills or money troubles. That’s why some people turn to a pension advance, also known as a pension loan, pension buyout, or structured settlement. These are deals where you can get a lump sum of cash now, but give up part, or all, of your future pension payments. While it may sound helpful in the moment, it’s important to know the risks. This article explains pension advances and alternatives for you to consider.

What Are Pension Advances?

Pension advances involve selling a portion or all of your future pension payments to a third-party company in exchange for a lump sum of cash. It’s not technically a loan because you are really selling your future income rather than borrowing money. The amount offered is typically far less than the long-term value of your pension, and the difference, along with added fees, can make this a very expensive way to access funds. Pension advances are often marketed as solutions for emergencies or debt relief.

How Do Pension Advances Work?

The process starts when an individual contacts a pension advance company, which then evaluates the pension based on factors like age, health, and payout terms. The company offers a lump sum, typically only a fraction of the pension’s total value. The additional costs are often extremely high, with terms that are rarely transparent. Once you sign the agreement, the company controls a portion or all of your future pension payments, and you may forfeit access to those payments permanently, depending on the agreement.

Why Should You Avoid Pension Advances?

There are several reasons to approach pension advances with caution. They’re extremely costly. The lump sum is deeply discounted, and the implied interest rate can exceed even high-interest credit cards. These agreements are also hard to undo. Once your pension payments are rerouted, it’s extremely difficult to reverse without legal intervention. This means you may be giving up guaranteed income for the rest of your life, which can lead to serious financial hardship in retirement if you outlive your savings.

Smarter Alternatives to Pension Advances

If you’re in financial distress, consider exploring alternatives. Working with a financial advisor or counselor can help you restructure debt, build a plan, and consider alternatives before making any drastic financial decisions. You may have access to personal loans, typically offering much better terms than pension advances. If you own your home, a home equity loan or line of credit may also be a realistic option. If you’re struggling with debt, contact your creditors to negotiate a payment plan or lower your rates. Depending on your situation, you may qualify for government assistance programs to help meet your financial needs.

Pension advances are expensive and risky. Before giving up your future income, talk to a financial expert, understand the consequences, and consider all your alternatives to ensure you protect your retirement income.

Contact one of our experts to explore safer ways to get the money you need without risking your retirement.