I have a tiny pension from a previous job and I received a notice that I can either take a lump-sum payment or begin monthly annuity payments now. Or I can do nothing and wait until 65.
Option #1 - Lump-sum payment. The amount is ~$5,584. I should be able to roll this over into my IRA, so no tax penalty.
Option #2 - Immediate Single Life Annuity for $29.37/month.
Option #3 - Single Life Annuity at age 65 for $106/month.
The annuities have no COLA.
I'm 43 years old. Looking at the IRA tables, my life expectancy is about 84 years old.
Based on the numbers, you can easily tell this isn't a deal breaker regardless of which option I choose.
I looked at immediateannuities and for a Immediate Single Life Annuity I'd get $21.30/month and at 65, $65.20/month. So if I went this route, I'd be better sticking with the current pension plan.
For the lump-sum option, I used VPW for now and at 65. For the former, I'd get ~$27/month and for the latter, $140/month. I used the average portfolio value from Firecalc from now until 65 using default values. Of course, these are ball-park numbers, since there's no way to know how the markets will perform.
As for the payout rate, it's: ($29.37*12)/$5584 = 6.3%, which looks pretty good.
The amount is so small that I'll probably take the lump-sum payment and buy a high-risk/high-reward ETF, something like EM.
But I have no experience in analyzing pensions and I'm wondering what's the best option out of three and mostly, why?
Option #1 - Lump-sum payment. The amount is ~$5,584. I should be able to roll this over into my IRA, so no tax penalty.
Option #2 - Immediate Single Life Annuity for $29.37/month.
Option #3 - Single Life Annuity at age 65 for $106/month.
The annuities have no COLA.
I'm 43 years old. Looking at the IRA tables, my life expectancy is about 84 years old.
Based on the numbers, you can easily tell this isn't a deal breaker regardless of which option I choose.
I looked at immediateannuities and for a Immediate Single Life Annuity I'd get $21.30/month and at 65, $65.20/month. So if I went this route, I'd be better sticking with the current pension plan.
For the lump-sum option, I used VPW for now and at 65. For the former, I'd get ~$27/month and for the latter, $140/month. I used the average portfolio value from Firecalc from now until 65 using default values. Of course, these are ball-park numbers, since there's no way to know how the markets will perform.
As for the payout rate, it's: ($29.37*12)/$5584 = 6.3%, which looks pretty good.
The amount is so small that I'll probably take the lump-sum payment and buy a high-risk/high-reward ETF, something like EM.
But I have no experience in analyzing pensions and I'm wondering what's the best option out of three and mostly, why?