It may help to provide a few more details such as:
where you live
are you required to retire from your job to take the pension, or can you continue to work
can you afford to retire immediately
are you still accruing benefits under the pension plan?
This will help someone provide a reasonable answer.
Good call, jernicklom. Here goes.
We live in the DC metro area.
I can continue to work and collect the pension, but might choose not to. This income would not be necessary to any kind of early retirement. We are currently considering my retirement with my wife continuing to work (she enjoys it). We can easily live off her income if I retire, but we would only be able to partially fund her 401k. This pension would allow us to continue to fully fund her retirement plan. So the net tax effect might be minimal.
I am no longer accruing benefits - whatever I am going to collect is set - the only variables are which type of distribution I am going to take and when I am going to start collecting. We have already decided that a monthly payout that would continue for the DW in case of my death is the only reasonable approach. Cashing out provides a pitifully small amount, especially given that taxes would definitely impact a lump sum distribution.
Edited to add illustrative numbers:
Using some nice round numbers for ease of discussion:
Age I start collecting Monthly amount
65 1000
60 850
55 700
If I were to start collecting at 55, I would have 10 years at $8400/year to invest before I collect a cent at 65. I have run this through several sets of calculations and the breakeven point for total payment (without taxes and ignoring investment income) is age 87. With any kind of return, the breakeven point moves further out. I just don't see why I wouldn't begin collecting immediately. I just want to make sure that I haven't overlooked anything.