Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Lump sum/pension/non-qualified annuity ? please help
Old 05-03-2013, 11:19 AM   #1
Confused about dryer sheets
 
Join Date: May 2013
Location: Silver Spring
Posts: 2
Lump sum/pension/non-qualified annuity ? please help

Hello,

My name is Elena, I am new to this site, and need some help.

I am 66, just retired.
I have a pension from company, which I can take as lump sum.
$376K as lump sum or $2100 monthly with 50% survival rate for my husband. it is about 6.5% payout.
My husband is working part time, maybe for another year, he is 67.

we both have 401K . I am leaning to take pension, for safety. However looking ahead, we realize we will have considerable taxes starting at 70, with RMD from both 401K.
we currently have 300K in after tax savings. we just wonder maybe we should take my pension as lump sum, add to IRA account, and buy annuity with after tax money ?

Does it make sense? I understand that those $376K will be part if RMD, and taxed, but should be considerably lower.

thank you for your help.
Elena
__________________

__________________
enret is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-03-2013, 11:22 AM   #2
Thinks s/he gets paid by the post
Katsmeow's Avatar
 
Join Date: Jul 2009
Posts: 3,399
If you take a lump sum, you can always buy an annuity later. If you take the pension, those it is final and you can't get the lump sum later.

When DH faced this decision, he took a lump sum.

That said, if you already have a lot of money in your portfolio then I could see why someone might take the pension instead.
__________________

__________________
Katsmeow is offline   Reply With Quote
Old 05-03-2013, 02:34 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,978
Here's a pretty good recent video on the annuity vs lump sum decision. Pension Lump Sum or Annuity: 5 Swing Factors

Have you gotten a quote for an annuity to see how the pension compares? What kind of monthly annuity income would the lump sum provide with the same terms as your pension? Many here use http://www.immediateannuities.com/ to get a rough idea, but you may have a better source for a quote.

I took a lump sum almost two years ago, knowing I could always buy an annuity (similar to a pension) anytime whether next month, 20 years from now, or never. But it's not strictly a $ decision, it depends on other factors, most that come back to would you sleep better at night if you had the pension?

BTW, have your entered your info into FIRECalc: A different kind of retirement calculator? It might be helpful...
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 05-03-2013, 02:40 PM   #4
Thinks s/he gets paid by the post
heeyy_joe's Avatar
 
Join Date: Nov 2012
Location: Madeira Beach Fl
Posts: 1,403
Grab the cash flow, take the pension.
__________________
_______________________________________________
"A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do" --Bob Dylan.
heeyy_joe is offline   Reply With Quote
Old 05-03-2013, 03:09 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,978
Quote:
Originally Posted by heeyy_joe View Post
Grab the cash flow, take the pension.
Wow, it's that simple, and taking a lump sum is never a good choice?
Attached Images
File Type: png LS vs AN.png (588.7 KB, 24 views)
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 05-03-2013, 03:18 PM   #6
Thinks s/he gets paid by the post
heeyy_joe's Avatar
 
Join Date: Nov 2012
Location: Madeira Beach Fl
Posts: 1,403
Quote:
Originally Posted by Midpack View Post
Wow, it's that simple, and taking a lump sum is never a good choice?
IMO, in the OP's scenario, electing the pension mitigates investment risk.

And it's never simple...maybe I should add to take the lump sum if your health is bad, or, or, or...
__________________
_______________________________________________
"A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do" --Bob Dylan.
heeyy_joe is offline   Reply With Quote
Old 05-03-2013, 03:28 PM   #7
Full time employment: Posting here.
SumDay's Avatar
 
Join Date: Aug 2012
Posts: 799
Welcome Elena! We were recently faced with this very decision. I an insurance saleswoman very aggresively pushing a variable annuity at us, and I luckily found this board just in time. I asked here about finding an impartial financial advisor, and someone here steered me towards the fee-only route. I found ours on NAPFA and was very pleased with the results.

The video link that Midpack provided is very helpful. It's a big decision, so hopefully you have a little time to mull things over.

We ended up taking the lump sum. Hopefully it will be a very long time before I know if it was the right decision.

Good luck to you!
__________________
SumDay is offline   Reply With Quote
Old 05-03-2013, 03:45 PM   #8
Thinks s/he gets paid by the post
timo2's Avatar
 
Join Date: Jul 2011
Location: Rio Rancho
Posts: 1,438
Is the company providing the pension stable enough to keep funding it as long as you live? If not, you might consider the lump sum.
__________________
"We live the lives we lead because of the thoughts we think" Michael O’Neill
timo2 is online now   Reply With Quote
Old 05-03-2013, 04:55 PM   #9
Dryer sheet wannabe
carib bound's Avatar
 
Join Date: Dec 2011
Location: Fairfax
Posts: 22
Quote:
Originally Posted by timo2 View Post
Is the company providing the pension stable enough to keep funding it as long as you live? If not, you might consider the lump sum.
+1. IMO, that's the first consideration, and as important as knowing the financial stability of the insurance company through whom you purchase your annuity, should you go that route.
__________________
carib bound is offline   Reply With Quote
Old 05-03-2013, 05:36 PM   #10
Dryer sheet wannabe
 
Join Date: Dec 2012
Posts: 22
Questions:
  1. Is your pension cola'd?
  2. Is the lump sum the amount you will receive (after taxes)? In my case, a portion of the reportable pension value has to be paid out as cash, and therefore is taxable. Keep in mind that I'm in Canada
In my case, I will definitely be taking the lump sum, rather than a monthly pension. The main reason is that my wife does not have a pension, and therefore would have to live on a survivor benefit from my pension. If I die soon after taking a pension, that would impact my wife's income for the rest of her life. I'd rather make sure she has access to the lump sum invested to produce more that a survivor benefit would. If I wasn't married, it might be more tempting to take the monthly pension.
__________________
CDN_47 is offline   Reply With Quote
Old 05-03-2013, 06:50 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,978
Quote:
Originally Posted by timo2 View Post
Is the company providing the pension stable enough to keep funding it as long as you live? If not, you might consider the lump sum.
My "pension" was frozen in 1994 at a pittance, nonetheless former (Fortune 500) Megacorp offered lump sum or pension. However, if you took the pension, they simply bought an annuity on your behalf - they did not fund the pension ongoing. So in some cases, it may not be the company's stability that matters, worth checking with your retirement admin.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 05-03-2013, 07:41 PM   #12
Recycles dryer sheets
Beryl's Avatar
 
Join Date: Jun 2007
Posts: 413
I agree with Midpack that you should weigh the pros and cons.

You stated how much you have in after-tax savings but not how much you have in your 401Ks or other investments that you can easily tap, if necessary. If you have ample funds available in case of emergency or if you want to splurge, the pension does provide a nice guarantee flow for basics.
__________________
Retired - Class of 2011
Beryl is offline   Reply With Quote
Old 05-04-2013, 06:50 PM   #13
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 576
I think you have received some good advice. There is not a right answer for everyone. A few things that ended up influencing me to take a pension. 1) I wanted a steady income during retirement and in my case, my pension covers 60% or so for my annual expenses. It is 100% survivor benefit 2) I utilized Immediate Annuities among other discussions to see if my company was providing a good annuity value or could I take the lump sum and buy my own annuity 3) I read (maybe WSJ) that people with steady income in retirement, like an annuity, feel better about retirement. 4) I did all I could to learned the level the company funded the pension fund and ultimately felt they were doing OK and 5) I felt comfortable that PBGC would make good if my company defaulted
__________________
davef is offline   Reply With Quote
decided on pension
Old 05-07-2013, 03:41 PM   #14
Confused about dryer sheets
 
Join Date: May 2013
Location: Silver Spring
Posts: 2
decided on pension

Thank you all for good advice, suggestions and for sharing your stories.
Midpack, thanks for reference to the video '5 swing factors', it is very good.
I followed all the references here, did my homework. After long consideration, I decided to take company pension.
It seems better then current annuity market, has 50% survival rate for my husband, covered with PBGC but not COLAed.
This way, our SS + pension will cover most of our immediate needs and I will sleep better. :-)
401K money will be in the market, with the hope to fight inflation.
__________________
enret is offline   Reply With Quote
Old 05-08-2013, 09:18 PM   #15
Thinks s/he gets paid by the post
Big_Hitter's Avatar
 
Join Date: May 2013
Location: In the fairway
Posts: 4,099
qualified private pension plans have to show a "relative value" (to the QJSA) when offering a lump sum over $5,000 - for lump sum optional forms of payment, the relative value must be based on 417(e) assumptions (unisex mortality and the same interest rates used to calculate the lump sum)
__________________

__________________
Big_Hitter is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 06:43 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.