Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 11-27-2010, 02:48 PM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Quote:
Originally Posted by Midpack View Post
My "pension" is worth about half of yours and I will definitely take the lump sum even though mine is with a Fortune 500 company. However, my lump sum amount is exactly what an annuity would cost me on the open market for the monthly amount so it's a wash from that POV - unlike your options. ...

Are you sure that your analysis of the situation is correct? Have you looked at all of your options and thoroughly thought it out?
__________________

__________________
chinaco 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 11-27-2010, 03:13 PM   #22
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,322
Quote:
Originally Posted by MARKT View Post

...even with a pension retirement program with the state of California, I won't touch for a good 20 years, I have to make more money on the side and invest it wisely.

MARKT
I would change the word "even" to "especially".
__________________

__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Old 11-27-2010, 03:26 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Quote:
Originally Posted by kyounge1956 View Post
Here's a recent WSJ article on the lump sum vs monthly payment decision.
The Great Pension Gamble - WSJ.com
Thanks for the article changing the pension calculation from Treasury Bonds to Corporate Bonds actually explains a phenomena I've observed recently. Several years when people posted the pension vs lump sum, I would plug the numbers into private annuity and look the at the interest from the best CD rates and conclude that lump sum was a better deal or worse case it was a wash between the two.

The last 1/2 dozen or so lump sum vs pensions I've looked at the pension seems to be clearly the best deal.


In this case it is paying almost 7.5% and given that you don't have kids presumably leaving a large estate isn't an top priority. The government TSP annuity would only provide $2200 and private ones would offer only $2500/month. In the event that company went bankrupt tomorrow the Pension benefit guaranty corporation would pay you $2025 and amount which raise each year as you get old at age 61 the entire pension would guaranteed if the company goes broke. In contrast in most states annuities are typical limited to $250,000 by the state insurance funds if the insurance company goes broke.

Would you do better investing the money in the stock market possibly? but you also could do much worse as the last decade shows us. It seems unlikely that 50/50 stock bond portfolio would generate more income than the pension.
__________________
clifp is offline   Reply With Quote
Old 11-27-2010, 03:29 PM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Quote:
Originally Posted by Nords View Post
Keep in mind that you're free to continue to voice your opinion, but it has no credibility until you've taken at least a six-week sabbatical to decide which lifestyle you prefer.

The "fog of work"

Given that he is working for the State of California which is basically bankrupt he may have opportunity to take the sabbatical quicker that he imagines.
__________________
clifp is offline   Reply With Quote
Old 11-27-2010, 03:42 PM   #25
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,322
Quote:
Originally Posted by chinaco View Post
Yes. The Pension Protection Act in 2006 changed the lump calculation. In effect a larger interest rate is used to discount lump sum calculations.
More precisely, a larger rate is used to discount the annual pension payments to arrive at the the lump sum.
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Old 11-28-2010, 06:32 AM   #26
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 chinaco View Post
Are you sure that your analysis of the situation is correct? Have you looked at all of your options and thoroughly thought it out?
Yes I think so, I PM'd you. Thanks! And my lump sum would be about 8% of my net worth (MegaCorp froze it in 1994), so not a big factor in my financial picture.
__________________
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 offline   Reply With Quote
Old 11-28-2010, 08:24 AM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Unless the best choice is obvious, most people should probably start by talking to someone in their benefits department.

If the pension is complicated (and they usually are complicated) and you are unsure how to optimize your decision, it would probably be wise to consult with someone who can help you do the analysis.

Take your time figuring it out and cross check any decisions with another credible expert if you can.

Since you worked for it all your life for that benefit and you cannot undo the decision... the stakes are high.


Here is a VG study on the topic: https://institutional.vanguard.com/iam/pdf/CRRLSA.pdf

This is a study of what occurred (decisions people made)... not necessarily what people should do.

An observation. This study was conducted for years 2000 - 2006 with low tenured workers ( average service of 11 - 13 years). Plus before the meltdown.

Low value cash out stats are sometime mixed with lump sum figures.... which can be a little misleading.


Here is a Schwab article about how to do some basic analysis.

Note the analysis tip... conservative equity allocations:

Quote:
TIP: Be sure to use a reasonable estimate of what your lump-sum investment might earn. We think a conservative portfolio of 20% equities, 50% bonds and 30% cash could grow 4.1% on average annually over the long term. Double that equity allocation to 40%—a riskier portfolio—and our 20-year estimate is still just 5.1% per year, much less than the annuity’s total return in the 30-year example above.
Lump Sum Vs. Annuity



__________________

__________________
chinaco is offline   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


Similar Threads
Thread Thread Starter Forum Replies Last Post
Pension lump sum value? hankster FIRE and Money 17 03-24-2008 02:13 PM
monthly pension vs. lump sum kbst FIRE and Money 25 11-20-2007 05:31 PM
Lump Sum,Pension History runnerr FIRE and Money 0 03-26-2007 03:07 PM
Take a lump sum or pension payout Rollie FIRE and Money 45 06-11-2006 07:54 PM
Annuity vs Lump Sum Pension moguls FIRE and Money 5 05-26-2003 03:09 PM

 

 
All times are GMT -6. The time now is 12:40 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.