To start, not "after taxes". This payout from a lump sum pension is transferable to an IRA, with all the flexibility that affords you:
- Ability to withdraw at your own pace after 59-1/2, not the fixed payout of the pension.
- Ability to convert to Roth if you wish, at any time (e.g. in lower bracket years or to 'top off' your bracket as you wish.
- Ability to leave the IRA to designated beneficiaries, pension typically can go to spouse, but that's it.
As far as the investing aspect is concerned, I was in a similar situation 8 years ago. I saw the math (i.e the return) that would be used, vs the lump sum. The pension is a fixed, guaranteed, relatively low rate of return, as you'd expect. You should be able to do the math and get an idea of what rates they are using. I was comfortable that I'd get more than that rate over the long term.
I counseled a number of co-workers when this choice was presented to us, and my advice leaned towards the lump sum transfer to IRA. Many went with my suggestion.
Those that didn't came back to me. They finally realized what I was saying about (a) the spousal benefit reducing the payout (dual life vs single) and (b) the fact that an annuity of this nature leaves nothing to your heirs. These two factors mean that even though the promised rate upon annuitization was say, 6%, it's not like a 6% CD, it's an immediate annuity.
The group was literally divided across the line of those who were good listeners and those who were afraid to ask questions. I link above to a good site to see the current IA rates. You need to make your own decision of course, but your decision must be well informed, knowing the pros and cons for one choice vs the other. For us, the flexibility discussed above was key, for others, the IA is the right move, but again, as long as it's understood.
(Note this is a beautiful question, I've not written about this on my site, even though I've discussed all the pieces. I'll edit here if I use this as a template for an article, and credit money.SE as my source.)