For many Florida Retirement System (FRS) members, retirement brings a major financial decision: what to do with large lump sums such as DROP payouts, Investment Plan distributions, or rolled-over retirement accounts.
A lump sum can feel empowering. It’s tangible, flexible, and provides a sense of control after years of structured paychecks. But taking a large amount too early — or without a clear plan — can introduce trade-offs that aren’t always obvious at first.
This article explores some of the less-discussed considerations FRS members should understand before accessing large sums early in retirement.
Trade-Off #1: Taxes Can Reduce the Lump Sum Faster Than Expected
One of the biggest risks of taking a lump sum too soon is concentrated taxation.
Large distributions taken in a single year may:
Push income into higher federal tax brackets
Increase taxation of Social Security benefits (if applicable)
Affect Medicare premium brackets later
Reduce net proceeds more than expected
Information provided should not be considered as tax advice from GWN Securities, Inc. or it's representatives. Please consult with your tax professional.
Trade-Off #2: Longevity Risk Becomes Your Responsibility
A pension provides lifetime income. A lump sum does not.
Once funds are withdrawn:
The responsibility for pacing withdrawals shifts entirely to the retiree
Spending too quickly early on can limit future flexibility
Unexpected expenses later in life can become harder to absorb
Trade-Off #3: Market Timing Risk Is Higher Early in Retirement
When large sums are invested — or withdrawn — early in retirement, market timing risk becomes more impactful.
Poor market conditions early on may:
Reduce portfolio value more quickly than anticipated
Increase the percentage withdrawn from a declining balance
Limit recovery potential later
This is sometimes referred to as sequence-of-returns risk, and it matters most in the early years after retirement.
Trade-Off #4: Spending Behavior Often Changes With Large Balances
Behavioral finance plays a major role in lump-sum decisions.
A large account balance can:
Encourage higher spending than originally planned
Blur the line between “income” and “principal”
Make it harder to maintain discipline over time
Many retirees don’t overspend intentionally — spending simply drifts upward when funds feel readily available.
Trade-Off #5: Health and Long-Term Care Costs Often Come Later
Many FRS members retire young, especially those in Special Risk roles. Early retirement years may be active and relatively healthy — but healthcare costs often rise later.
Taking large lump sums early can reduce:
Flexibility for higher medical expenses
Ability to respond to long-term care needs
Margin for unexpected health events
The timing mismatch between early spending and later costs is a common challenge.
Lump Sum vs. Structured Access: It’s Not All-or-Nothing
Importantly, this isn’t a binary decision.
Some retirees:
Take partial distributions
Leave funds invested and draw gradually
Coordinate lump sums with pension income and Social Security timing
Delay major withdrawals until later retirement stages
The goal is not to avoid lump sums — but to understand the trade-offs of taking too much, too soon.
Final Thoughts
Lump sums offer flexibility and opportunity, but they also shift responsibility, risk, and discipline onto the retiree. For FRS members with strong pension benefits, the temptation to access large balances early is understandable — but timing and structure matter.
Understanding the trade-offs around taxes, longevity, market exposure, spending behavior, and future healthcare needs can help retirees make more informed, intentional decisions.
A thoughtful approach doesn’t mean avoiding lump sums — it means using them with purpose.