Hi, I am probably getting laid off

[chewy]

Hi, I am 52 and my wife is 48. I have a good chance of getting involuntarily separated from megacorp in December of this year.
I have been a longtime lurker of this board and have always planned on retiring by 55 or so. I have a decision to make regarding my pension if I do get the boot in December.

The current numbers are lump sum 426000 or 27324 per year. This number seems significantly better than any annuity I could purchase at this time. I am eligible for the group retiree insurance plan at a slightly reduced rate. Currently 950 per month, probably cheaper then I could get privately in NJ.

I believe I need about 80K per year to maintain my current lifestyle. In a pinch I could do with less, not sure how much less.

We currently have 1160000 in investments. Allocation is 57% stock, 27% bonds and 16% cash.

800k is in retirement accounts and 360k is in after tax.

My house is paid for worth approx 400k, but prop tax are $9500 per year.

My wife makes 40k per year and does not plan to leave her job for approx 3-5 years depending on how things go at work. Currently she enjoys her job and may work for a long time if it stays the same.

I suspect I will be unable to find a job in my field and if this is the case I would like the option of not working at all.

I have played with firecalc quite a bit and there does not seem to be a significant indicator on whether to go with the lump sum or annuity option. I realize I have quite a bit of uncertainty in my plans. The first decision I will have to make is whether or not to take the lumpsum or the annuity. What do you think?

Note that I asked a similar question years ago regarding my sister and the replies were very helpful. She ended up taking the lump sum and is doing quite well in her retirement so far at 52.

 

[pb4uski]

I think you're looking good as long as DW works for a few more years. You should factor in SS to your plan.

It would probably be good to do some analysis of your expenses to try to refine the 80k.

Is health insurance available to DW through her work?

On way to evaluate the pension is to run firecalc with the pension and with the lump sum and compare the results. If the pension plan is financially healthy and covered by the PBGC I would lean towards the pension as the payout rate seems attractive given your age. Is the $27k sole life or joint life?

 

[H2ODude]

I hesitate to make recommendations, but if it were me I'd go with the pension as opposed to lump sum assuming it is sound and covered buy PBGC as indicated by pb4uski. I'm fortunate at 61 to be well covered as we are way LBYM with investment models with about 1/2 from investments, 1/2 from pension (before SS kicks in). It's quite a comfort to know that if all blows up the state pension fund which is one of best funded would still be there. No matter the size of the portfolio, relying totally on it as many must is a bit disconcerting. At your age, assuming 4% SWR, the pension looks pretty good.

Seems to me that before you pull any plugs you need to do a lot of analysis of the expense side, with a lot of emphasis on health care. Best of luck.

 

[MasterBlaster]

Here's how I look at your situation...

The $1.16MM using a 4.5% withdrwal rate will bring an around $52k/year

add that to the $27k pension and you get around $79k/year income.

So you are certainly around your ballpark spending needs. You didn't say whether or not the $80k included taxes. If it does you are very close.

You will also get some sort of Social Security that will help you out. That should push you over your income needs.

The Firecalc or the ORP calculator can help you sort out withdrawal rates.

FIRECalc: A different kind of retirement calculator

http://www.i-orp.com/

Also, If you do retire, you may want to go with a more conservative asset allocation.

 

[pb4uski]

....Also, If you do retire, you may want to go with a more conservative asset allocation.

I actually have a different view. I think 57 stock/27 bonds/16 cash is fine but with arguably too much cash. I'm about 5 years older than the OP and I'm 60/40 but hold about a year in cash, so it works out to 58 stocks/38 bonds and 4 cash. That said, different people have different limits on what can help them sleep at night so its a judgement call, but I would view the OPs AA as pretty middle of the road.

 

[Bestwifeever]

I vote pension over the lump sum for the reasons stated above and just because .

...Note that I asked a similar question years ago regarding my sister and the replies were very helpful. She ended up taking the lump sum and is doing quite well in her retirement so far at 52.

Do you know what your sister did with the lump sum? If you did take the lump sum, would her strategy work for you?

 

[copyright1997reloaded]

Other factors going into Pension/Lump Sum:
1. Is the pension COLA'd?
2. How is your health?
3. Do you have any children?
4. (Already asked): Is the quote Single Life or J&A, and if J&A what %.

When I FIRE'd, I took the pension because:
1. The Pension vs. Lump Sum was skewed toward pension from megacorp. This was the major reason.
2. I have a young child, this provided additional safety as I made my child 50% J&S
3. I FIRED May 2009, by taking the pension it let me sleep at night and also let me be a bit more aggressive in my equity allocation (and buying securities).

 

[chewy]

Thanks for all the advice. The pension is sole not joint. It is also non-cola. Both of us are in good health. I do have a 16 year old son but have some money put aside to possibly help him with college that I did not include in my numbers.

My sister has a larger amount then me and lives cheaply and has the majority of her money in a fidelity target fund. It seems to work for her but I have higher expenses.

I would not have so much in cash except that about 2/3 of it is in penfed 10 year 5 percent cds and I am happy with them for now.

The 80k does include taxes and some fluff. We have always lived on less then 80k but I like to be conservative. It is possible DW will be able to get benefits, if that happens we will be in much better shape.

I will probably end up taking the annuity rather then the lump sum, I will have to find out how much it will go down if I add the survivor provision. That may change things.

I believe I could probably make it, but I am relatively conservative. I may end up doing come contract work for a few years to pad my nest egg.

Thanks again for all the advice. It is great to here the real world experiences the folks on this board provide.

 

[grasshopper]

It is kinda late, but if you nailed down current vs future expenses that would be helpful. The ER forum is most split 50/50 with some spending more and some spending less after ER.

 

[rodi]

Was your wife's income figured in your calcs? Is the 80k gross or net?

I've compared my small pension lump sum to the annuity megacorp offers and at this point it skews heavily towards taking the annuity.... I think that most pensions are based on a higher interest rate environment than we have at the moment.

 

[chewy]

I have a good handle on current expenses but future expenses are difficult. The 80k is gross. I know I will be fine while my wife is working. When she retires will be when the rubber hits the road. I would like it if she could retire 3-5 years after I do.

Rodi, I suspect you are correct about the pensions being skewed.

 

[rothlev]

Be aware you won't have easy access to your deferred funds until you are 59 1/2. You might be able to 72t it. Do you know how much SS you have coming? And you may well qualify for unemployment for a while too.

 

[pb4uski]

I have a good handle on current expenses but future expenses are difficult. ....

FWIW, for me it was a matter of taking current expenses and making some adjustments for what I expected to happen after I retired. Health insurance was based on COBRA rates and ended up being too high as I was able to find individual insurance for less. Entertainment was too low (but not a worry) as I have been more active playing golf than I expected to be and DW took up the game. Other than that our livings expenses are pretty much the same (and I telecommuted so no fuel savings from ending work).

 

[obgyn65]

I agree with this.

I hesitate to make recommendations, but if it were me I'd go with the pension as opposed to lump sum assuming it is sound and covered buy PBGC as indicated by pb4uski.

 

[GT1 Doug]

If your company is no financial danger, the pension seems very good particularly if you get to collect immediately. I recommend that you look at the Pension Benefit Guaranty Corp website (Pension Benefit Guaranty Corp - PBGC Protects America's Pensions) and verify exactly what protections you will receive to determine what your risk is. I was looking at taking a lump sum and rolling it over into a qualifying IRA. It appears that in general if one does that, one can't access the money until 59-1/2 without a 10% penalty. If you get any severance pay and if you have the option of getting it next year, it will save you tax dollars. Good luck.

 

[Milton]

My house is paid for worth approx 400k, but prop tax are $9500 per year.

Wow! That is one heck of a high tax rate. :-(

 

[ducky911]

I think looking into the future retirement costs people can make a mistake.

Best to turn everything into todays dollars on your pension.

Your non cola 27,000 will shrink to 20,000 by the time you are 65 years old

And when you are 100 it will be worth $4,000

here is a site that helps calc inflation over time

http://inflationdata.com/inflation/inflation_calculators/Cumulative_Inflation_Calculator.aspx

I am not saying which way you should go with your pension, just pointing out that alot of years of inlation can be scary.

My mother cash in a life policy that my grandfather had bought for her in the 1920s...it was $350 dollars...

 

[copyright1997reloaded]

Wow! That is one heck of a high tax rate. :-(

I'd guess my house is worth in the low 3's (e.g. 320k) and my taxes are approaching $8500/year. Welcome to NY.

 

[Rambler]

Tough one. If it was a joint pension, I'd lean toward the pension. Since it is sole, I'm not so sure. But that's me...I would worry about leaving this world early with DW not adequately cared for. Just my two cents...and probably not even worth that much...

R

 

[Shanky]

PBGC would not cover a pension that high. It is well above the Max for age 52.

 

[tdv2]

Wow! That is one heck of a high tax rate. :-(

I'm in exactly the same boat with Taxes. I live in North Jersey too....house worth about $450K taxes are $9k. Not too much you can do about it unless you downsize or move.

 

[bob boag]

Hmm the ratio of your lump sum to annual annuity is 15.6. By way of comparison when I retired last year my ratio was 31.7 (I took the lump sum!). My annuity option was COLA'd; yours too?

Oops just saw you're not COLA'd. Maybe that ratio is about right

 

[target2019]

In NJ, I would be faced with similar problems, with the exception of health insurance, which is covered by wife's employment. The main drivers I think about, in case the hammer comes down on me next year are:
- Real estate taxes approx 1K per month. Since wife works out of state, we would be highly driven to sell house and move out of NJ. I believe we could knock that tax in half, for a nets savings of $500.
- Wife's pension is 5-10 years down the road. May or may not be able to exclude a portion of that from NJ tax.
- Healthcare uncertainty if wife loses job (pre-existing conditions for both)

Moving from NJ is something to consider at some point.