NEW YORK (CNN/Money) - I'm 67 and I have the choice of taking my company pension in a lump sum, rolling it over into an account I control or taking a fixed amount of money each month. Which do you recommend?

-- James, Carlisle, Penn.

Unless you really, really need the cash -- or you know you're going to depart this world soon and you'd like to go out in a blaze of spending glory -- I think the lump sum is the least attractive alternative.

Why? Well, you would probably get hosed on taxes since you would owe ordinary income tax on the entire lump sum (minus any after-tax contributions you made, if any). If we're talking about a sizeable distribution here, you could be paying north of 40 percent in federal and state taxes combined. So you would get your lump and take your lumps, so to speak.

Now that we've eliminated that option, let's take a look at the two others. The fixed monthly payment -- which is essentially an annuity from your employer -- can provide you with some security. You know that, no matter what, you're going to get that monthly check in the mail each month.

But this option also has some disadvantages. If your employer doesn't provide a COLA, or cost of living adjustment in the payment, then inflation is going to seriously erode the value of that payment over time. The payment won't be worthless, but it will be worth less and less over time. And even if your employer did provide a COLA, there's another downside to consider -- namely, once you accept the guaranteed payments, you typically no longer have access to the cash value of your account. You've given it up for the payments.

If you have other assets aside from this pension money to tap into -- a sizeable portfolio of investments, say -- then these downsides may not be a problem. You could always dip into those assets to compensate for the declining purchasing power of your fixed payment or to provide cash for unexpected emergencies. But if this pension money is pretty much all you have, then I'd be wary of converting it to a fixed payment.

That leaves us with the rollover. Here, the advantage is that you can invest the money pretty much any way you want and you can withdraw the money as you please. (I'd recommend still tilting your mix toward equities, though, to provide some long-term inflation protection. For a guide on how to divvy up your money, check out our Asset Allocator calculator.)

The problem with this approach, though, is that you could run out of money before you die. That could happen because you simply withdraw too much given the size of your portfolio, or your investments don't perform well or because both these things happen. In any case, with this option, there's no guarantee that you'll be getting a check in the mail the rest of your life.

So, given the pros and cons of the fixed payment and the rollover options, which of the two do I recommend? How about considering both? That's right, I'm not being flip. I'm perfectly serious. By putting some of your money into the fixed payment option, you're assured of having at least some money coming in each month no matter what.

And by keeping a portion of your money in a rollover account invested in stocks and bonds and the like, you have the potential for capital growth and a portfolio of assets you can tap if you need to.

Now, as a practical matter, you'll have to see whether your employer will let you split your money between the rollover and the fixed payment option. If your employer won't let you do this, you can roll over all the money and then use some of it to buy what's known as a fixed immediate annuity -- essentially, you give a sum of money to an insurer in return for a guaranteed payment. (Whatever you do, don't take a lump sum and then buy an annuity. Taking the lump sum will trigger taxes and leave you less money for the annuity.)

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For more on how fixed immediate annuities work and for actual quotes on how much monthly income you can buy for a given sum of money, check out WebAnnuities.com. In fact, I'd get a quote on immediate annuities even if my employer does allow me to split my money between a rollover and fixed payment option. Who knows, you might get a higher income from an insurer's fixed immediate annuity than from your company.

One final note: if the idea of a guaranteed lifetime payment appeals to you, you might also want to consider another type of immediate annuity known as a variable immediate annuity. With a variable immediate, your monthly payment varies depending on the performance of the financial markets, but it also has the potential to grow over time. I admit that variables can be difficult to comprehend, but you can learn more about them by checking the Annuity section of Insure.com.

All in all, the prospect of a growing income makes variable immediate annuities worth looking into, although I think you'll likely boost your income by sticking to ones with relatively low costs, such as those offered by TIAA/Cref, Vanguard and T. Rowe Price.

Walter Updegrave is the author of Investing for the Financially Challenged and can be seen regularly Monday mornings at 8:40 am on CNNfn.