Pension Annuity or Lump sum?

[MarieIG]

Quote:

Originally Posted by target2019 A study by an insurance company highlights how happy those with annuity are. I would take it more as a sales brochure for annuities.

You can take it that way. Why would a company pay for a study if they had nothing to gain from it?

On the other hand, I think it has points worth considering. Did you read it all the way through?

[rothlev]

Quote:

Originally Posted by badatmath Double check how the survivor benefits work. My plan cuts the benefit when either dies - not just the primary holder. I know someone who took the lump sum and kind of regrets it. Hasn't run out of money some 20 years in, but worries about managing risk and so on.

I know a couple that did run thru the lump sum - Helped their daughter etc... wound up with no money to pay for assisted living when the time for that happened.

[street]

Quote:

Originally Posted by target2019 A study by an insurance company highlights how happy those with annuity are. I would take it more as a sales brochure for annuities.

True >>> I was told by an annuity sales person that they want people to buy into annuities rather then taking the lump sum. He said, annuities are setup with payouts for them (company) to win. They aren't going to pay you more then what you have coming with an annuity.

I also don't beleive a lump sum is good for everyone either.

[BeachOrCity]

Lots of good info in this thread. The OP and folks making the decision should understand the pluses and minuses and make the best decision based on THEIR OWN circumstances, finances, and risk tolerance. Either answer is not right for everyone.

[target2019]

Step by step framework for the pension vs lump-sum decision follows. Each step requires more input and introspection.

Quote:

Step by step Is your offer a fair deal? In other words, can your offered lump sum buy the pension? Have you considered delaying your claim on Social Security, and how might this lump sum enable you to do so? What is your opinion on your own mortality? Do you want to plan beyond a life expectancy of 83 years? What do you think of the viability of the provider, be it your company for your pension, your insurer for your annuity, or the Federal Government for Social Security? Have you considered and planned for the income streams you will need in retirement? Do you think you can do better with a lump sum by investing it yourself? Better than a guaranteed income stream for the rest of your life?

https://www.bogleheads.org/wiki/Lump_sum_vs_pension

[Big_Hitter]

that annuity is worth a lot, especially for a spouse 17 years younger

[Teacher Terry]

Thankfully the spouse has to sign off on what is chosen so no ugly surprises when one person dies. When I was young I worked for Inland Steel in the benefits department. Husbands would tell their wives that they had chosen the survivors benefit and then they would become hysterical upon learning they lied. Often these women were in their 50’s or 60’s and had never worked.

[pb4uski]

Quote:

Originally Posted by Big_Hitter that annuity is worth a lot, especially for a spouse 17 years younger

Actually, 13 years younger... but your point is still valid.

[Rianne]

Quote:

Originally Posted by Teacher Terry Thankfully the spouse has to sign off on what is chosen so no ugly surprises when one person dies. When I was young I worked for Inland Steel in the benefits department. Husbands would tell their wives that they had chosen the survivors benefit and then they would become hysterical upon learning they lied. Often these women were in their 50’s or 60’s and had never worked.

Seriously? The wives never looked at the books? I would know in a second if numbers looked unusual. Then again, many spouses have no clue what's going on financially. It's not a partnership if one is hiding something. Downright mean.

[Brat]

Quote:

Originally Posted by Big_Hitter that annuity is worth a lot, especially for a spouse 17 years younger

Yes but it has no cost of living increase. The value of the spouse annuity, given that she is 17 years younger and lives a normal lifespan, will decrease to chump change.

[pb4uski]

Quote:

Originally Posted by Brat Yes but it has no cost of living increase. The value of the spouse annuity, given that she is 17 years younger and lives a normal lifespan, will decrease to chump change.

Perhaps, but the spouse is still doing a lot better than these spouses.

Quote:

Originally Posted by Teacher Terry .... Husbands would tell their wives that they had chosen the survivors benefit and then they would become hysterical upon learning they lied. ....

^^^ Despicable.

[imoldernu]

Annuity purchased 1984 for $8,000.
Began taking $1225/mo. this year, for 5 years at age 83. $15K/year now helps. All transferrable 100%.
Almost forgotten... not too bad an ROI.
Inflation would have been $20,000 in total.. actual will be $75.000.

[Teacher Terry]

Rianne, there was nothing for the wives to look at. It was the employee’s private business. 40 years ago we couldn’t have told them if they inquired without their husband being present and giving us the go ahead. My dad took a smaller pension to protect my mom because his health was bad and he knew she would outlive him. She lived 17 years longer.

[Big_Hitter]

Quote:

Originally Posted by Brat Yes but it has no cost of living increase. The value of the spouse annuity, given that she is 17 years younger and lives a normal lifespan, will decrease to chump change.

nope - the spouses annuity is much more valuable because she is 13 years younger - it appears to be worth about 15% of the lump sum

where did you study actuarial science?

[Big_Hitter]

Quote:

Originally Posted by pb4uski Actually, 13 years younger... but your point is still valid.

typo - I used a 47 year old spouse in my calc

the annuity appears significantly more valuable than the LS

disclaimer: do your own calcs or hire an actuary

[pb4uski]

Quote:

Originally Posted by imoldernu Annuity purchased 1984 for $8,000. Began taking $1225/mo. this year, for 5 years at age 83. $15K/year now helps. All transferrable 100%. Almost forgotten... not too bad an ROI. Inflation would have been $20,000 in total.. actual will be $75.000.

Looks like ~3.75% annually to me.

[pb4uski]

Quote:

Originally Posted by Big_Hitter typo - I used a 47 year old spouse in my calc the annuity appears significantly more valuable than the LS disclaimer: do your own calcs or hire an actuary

Preferably an actuary who doesn't make typos.

[LimaPop]

Can you marry someone on your death bed and pass the annuity to a much much younger person ?

[Big_Hitter]

Quote:

Originally Posted by LimaPop Can you marry someone on your death bed and pass the annuity to a much much younger person ?

that's a pretty rare provision in defined benefit plans

i've seen that provision a few times in public sector defined benefit plans - essentially the benefit passes on (once, thankfully) to whomever you are married to when you die - it's an extremely expensive feature

regarding perpetuities, 401a9 requires that non-spousal beneficiaries be limited to a 50% J&S benefit

[Big_Hitter]

Quote:

Originally Posted by pb4uski Preferably an actuary who doesn't make typos.

what do nearly retired actuaries know anyway?