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Take Lump Sum and accept new job offer?
Old 07-05-2011, 09:41 PM   #1
Confused about dryer sheets
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Take Lump Sum and accept new job offer?

Hello, hoping I can learn from others experiences here on this forum. I am not seeking early retirement yet, however I am 50 and am eligible for my lump sum or annuity pension options as of this month ( Yeah thought I would never make it)

I do wish to continue working until I feel I have enuf $$ to retire officially. My issue now is should I take my lump sum now, and accept a job offer from a competitor but at a 30% pay reduction? Or keep working at my company and risk my lump sum going down as interest rates maybe rise in the future.

The pay reduction is still a great living in my area, but far less than I make now. Also, my main concern is the opportunity cost of not taking the lump sum now and having it grow over 10yrs or so ( I hope it would grow).

Anyone done something similar? Many thanks.

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Old 07-06-2011, 07:19 AM   #2
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Read this. It is a GAO study about the importance of guaranteed income.

Here is a discussion about this study..

Another federal annuity study

That pension is valuable... I am not sure why you would give it up.

Plus, why take a job at a 30% cut??

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Old 07-06-2011, 08:50 AM   #3
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Welcome to here..

Congrats on making it to the milestone of 50. That was my original plan but pulled the trigger earlier.


1) If you stayed and worked at the current place, past fifty, wouldn't the lump sum still be there for you, but just be a bigger lump sum? Is it a take it now or lose it situation?

2) Do you like the job that you are currently in? To me, if I hated my current, job, but liked on even at a 30% less pay, seems like a good trade off (as long as the new job wouldn't eventually turn like the old one and you can make it with the 30% decrease).

Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
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Old 07-06-2011, 08:58 AM   #4
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Current lump sums are calculated based upon current interest rates, and the amount of income you can expect in the future, based upon the invested sum.

Since interest rates are currently low, you will receive more in a current lump sum "payoff". Assuming that interest rates rise in the future, you will receive less in the lump sum at that time if you stay in your current j*b, and decide to retire.

However, what would be the difference in leaving now (higher lump sum) and going to another job (lower income) vs. staying at your current j*b, with a higher current income with a possible lower lump sum when you decide to retire?

For me, there are too many "unknowns". If your current income supplies your needs, why would you settle for less at the currrent time? And if it does, can you not save more to account for a possible smaller lump sum (based upon unknown interest rates) in the future?

It sounds like a "wash". I see no advantage to go either way, but that's just my opinion as an unknown person on a public board.

If you are happy in your current position, why leave? (you have to answer that). Also, would you be happy to both start a new j*b (with a lot of "unknows") at a lower salary at this time? Also, if you can live on 30% less in a new j*b, why can't you save/invest 30% more while at your current j*b?

Additionally, you would be responsible for the investment of the lump sum at the current time. "I hope it will grow" is not a plan, IMHO. Unless you are comfortable with investing on your own, you could well lose any advantage you may get in "cashing in" at this point.

Only you can answer these questions.

Regardless - good luck to you, whatever you decide - and your future brings...
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Old 07-06-2011, 09:37 AM   #5
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Originally Posted by chinaco View Post

That pension is valuable... I am not sure why you would give it up.
There are a lot of reasons to take a lump sum in lieu of pension. DH faced this decision a year ago and we opted for the lump sum.

1. The pension was not COLA adjusted. Actuarially the lump sum was the equivalent of the pension when you consider all factors.

2. Taking the lump sum and rolling it to a Vanguard IRA we felt was safer than the pension. Retirement may last a long time. What if the employer goes under. Yes, yes, I understand about the PBGC. But.... it could itself go under or be changed. Even if it doesn't, it has a maximum amount of pension that it will guarantee. If you exceed that and the employer goes under you just lose that. DH's pension allowed for a 100% survivor option. I'm several years younger than DH so we would have gone for that. But, PBGC will only pay a 50% survivor option.

3. We liked the flexibility of having the larger lump sum. We also like the idea that we control it, can leave it to heirs if we want, etc.

4. If we really decide we want to have some guaranteed income there is nothing to stop DH from buying an annuity. However, if you take the pension instead of the lump sum you can't change your mind and then get the lump sum.
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Old 07-06-2011, 10:26 AM   #6
Confused about dryer sheets
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Hello all,

Thanks for the fast replies. I agree with all of the posts, but sometimes seems helpful to socialize with people who have been there before. Something else is my Pension was “frozen” in 2006. So numbers are locked in as of that date.

KatsMeow - I had the same conclusion so far- the Pension lump sum is higher right now due to low interest rates, and at 50, I can invest and make it grow- The Pension Annuity is backed up by the PBGC but because I am "retiring" at 50 and not 65, I am severely penalized in that event, and no COLA is a killer.

Rescume- that is my dilemma as well, the unknowns, I have thought of if I stay I should invent more to make up the delta, the unknowns are clearly how much I could make on the extra investment after tax, and rumors abound that the lump sum may be discontinued ( also layoffs have been rampant in my company). So I could find myself in a yr or two with only the Annuity option, but also unknown.

EasySurfer- Thx for the congrats, if I stayed at my current job the pension will be there, the annuity will rise a little (until 55), but the lump sum will vary depending on interest rates that change monthly, and my life expectancy, so theoretically the longer I wait, the lower my lump sum, and if rates rise my lump sum goes down even further, making the annuity more attractive at that point. Thinking if I take the higher lump sum now, and invest, I can make much more over 10 yrs of working in new job.

Chinaco- much appreciate the links, those are very helpful and will look them over carefully.

All in all the job change is my decision based on can I live off the reduction ( yes), but the main factor is getting my hands on the lump sum now and investing, I am thinking that is my opportunity cost of NOT leaving now vs. the unknowns in the future few years of the Lump Sums viability.

Maybe I am overthinking this too much, but this is very helpful and therapeutic to get your feedback, it really helps and is much appreciated.

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Old 07-06-2011, 03:15 PM   #7
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Originally Posted by PnJL View Post

Maybe I am overthinking this too much, but this is very helpful and therapeutic to get your feedback, it really helps and is much appreciated.
This is a very important decision, one that warrants plenty of thinking. So no, I don't believe you are overthinking it. I have a similar decision upcoming, and the two factors that influence what my plans are (to take the pension, not a lump sum) are a) it is COLA'd, and b) health insurance is covered. If those weren't there, I'd probably take the lump sum and invest it as discussed.
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Old 07-06-2011, 05:55 PM   #8
Confused about dryer sheets
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In my case the Pension Annuity is not COLA'd, however the health bennies ( what little they are) are not coupled with any Pension $$ option. I can take the Lump Sum and still receive as many bennies as the Annuity Option. Hopefully yours is the same.

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