What’s better, lump sum or annuity payments?

There’s a reason roughly 40 percent of Americans say they have less than $1,000 or so in liquid savings: Many people spend whatever money is available. When a windfall comes their way — in the form of lottery winnings, tax refunds or retirement-plan payouts — there’s a temptation to use it to pay down debts, go on vacations or give money to kids.

Those aren’t necessarily bad choices, but they can mean assets get whittled down, especially in the case of retirement plans. The latest evidence comes from a survey by MetLife of roughly 1,000 people, mostly at or near retirement age. The respondents had been given the option of taking retirement money, primarily pensions, either as a lump sum or as ongoing annuity payments, typically stretching for as long as they live.

Most respondents indicated they made wise decisions, but one in five retirement-plan participants who selected a lump sum said they already had blown through the money. The people who depleted their lump sums did so over just 5.5 years on average.

Some recipients used their retirement money for relatively short-term purposes. More than one-quarter of the people who spent lump sums used the money to pay down credit cards or other debts. Other common uses included home improvements/repairs, new vehicles or vacations. Nearly one-quarter of these individuals gave money to friends, family members or charity groups, and some said they regret those decisions.

The survey was conducted to understand how people view the lump sum/annuity decision and related issues. Many people who took lump sums didn’t realize how quickly they would go through the money or underestimated how long they might live.

“People will talk about how long their parents or grandparents lived, but when they talk about their own longevity, they have a different perspective of it,” said Roberta Rafaloff, a MetLife vice president focusing on income annuities.

Among respondents who opted for a lump sum, the most common reason was wanting to maintain control over the money, including those who thought they could generate higher returns compared with what an annuity paid. People who chose lump sums also described themselves as more accepting of stock market and other risks compared with those taking annuities. Many lump-sum takers said they already had other sources of regular income, such as Social Security benefits or money from another pension.

One focus of the report was to encourage people to examine their retirementaccount balances to estimate how much money those assets will generate. “People will look at their 401(k) statements and pat themselves on the back saying, ‘Wow, I’ve saved $200,000,’ ” said Rafaloff. “They don’t understand what that equates to in terms of guaranteed income.”

Many factors go into the lump sum-orannuity decision, and some of these