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Help w/ odd Lump Sum vs Fixed Payment COLA'd Pension problem
Old 06-10-2008, 10:00 PM   #1
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Help w/ odd Lump Sum vs Fixed Payment COLA'd Pension problem

I am retiring soon and I am having trouble evaluating between the lump sum rollover and the fixed payment options of my pension.

Lump Sum:

As an example, the lump sum that would be taken is $30,000. I would like to assume that I could rollover that amount and realize an 8-10% annual rate of return from an investment portfolio.

Fixed Payment:

As an example, the alternative fixed payment allows $2400/yr for my life and $1800/yr (75%) for my spouse after my death. This option does have a COLA; however, the COLA doesn't kick in until after 5 years, at which point it's 3% annually.

Life Expectancy Assumptions: Let's assume that I live for 15 years after retirement, and that my wife will survive me by 20 years.

So, which is better? The one element I have the most trouble evaluating is
the 3% COLA after 5 years. I know this is of significant value, but I am
not sure what it drives the break even investment earnings point up to.

I would appreciate any ideas. Thanks for your consideration!

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Old 06-11-2008, 06:05 AM   #2
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Well, in safe withdrawal terms the annuity is giving you 8%/yr with a 3% inflation factor built in. I would go for that. That 3% will make a big difference over time.
Every man is, or hopes to be, an Idler. -- Samuel Johnson
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