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Annuity or Lump Sum?
Old 12-23-2008, 01:25 PM   #1
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Annuity or Lump Sum?

Can't decide whether to take the lump sum or monthly annuity when I exit in March of 2009. Rates are so low now, that CD's won't come as close as the annuity. This is a non COL joint annuity that ends at the death of Myself and spouse. Some outside annuities will return the principal at death. What have you done with the same choice as me?


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Old 12-23-2008, 01:33 PM   #2
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If you have the choice of taking a partial lump sum and smaller annuity...I think that's the way to go. That's what DH will do in May of next year.

There's no need to complicate, our time is short..
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Old 12-23-2008, 01:39 PM   #3
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Do a search (on "instant annuity") here as this has been discussed heavily. The vote seems to be "take the cash and run". What company, how solid are they financially (if anyone can tell any more), seems to be the best gauge to assist in the decision. Tough decision especially now (other than taking the cash and running).
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Old 12-24-2008, 08:00 AM   #4
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At one time I would have said lump sum without a doubt. Now after dumping mine in a 50/50 stock/bond blend 18 months ago, I wish I had done an annuity. Of course knowing my luck, I would have picked AIG. So, I have no idea what to tell ya.
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Old 12-24-2008, 08:11 AM   #5
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The question may depend in part on what other assets you have. If you have substantial equity investments in taxable/tax-deferred accounts, an annuity may be an important floor for your retirement. See recent Scott Burns Art on subject.

A Monthly Pension Income Can Protect Your Portfolio - Registered Investment Advisor
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Old 12-24-2008, 08:44 AM   #6
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I'd add family history of longevity into the list of considerations. If someone has a family history of unusual longevity and they are very healthy, taking the annuity might be a better deal according to "the odds." But as already mentioned, that's only as good as the solvency and security of the entity providing the annuitized payments. If you have reasonable doubt about that solvency, take the money and run regardless of the odds -- a bird in the hand and all that...

On the other hand, someone with a family history where almost no close relatives make it past 70 or 75 -- or someone who isn't terribly healthy and/or has chronic debilitating conditions -- would probably be better served with a lump sum.
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)
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Old 12-24-2008, 08:49 AM   #7
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This is similar to the question of when to start Social Security -- and that's been debated at great length. But, I'm sure you should co-ordinate your decision here with what you do on SS.

The rates on the pension are critical. I have a family member who had the same choice, but looking at the rates it was clear that whoever developed them was giving a much better deal to the people who took the annuity option.
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Old 12-24-2008, 09:27 AM   #8
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I like the annuity option as a base for your financial planning. Of course this depends on the items suggested above, such as longevity expectations and soundness of the future annuity payments. I didn't have an option, but that's ok for me. My only concern is the future strength of the pension. But I didn't have an option anyway. You probably also have an option of when to start the pension. I have deferred mine until I can receive 100% of it at 65. My family members lived passed 80, and mine is not COLA'd. At least you have a pension to make a decision about.
Can't you see yourself in the nursing home saying, " Darn! Wish I'd spent more time at the office instead of wasting time with family and friends."
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Old 12-24-2008, 09:36 AM   #9
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The lump sums payable will be decreasing from now until 2012 because the interest used to calculate them is blending in corporate bond rates. This maybe the last year a lump sum may make any sense for someone who is in relatively good health.

Also remember the PPA of 06 funding deficits kicks in this yaer. If under 80% funded, the lump sums are limited to 50% OF THE CALCULATED AMOUNT AND THE REMAINDER MUST BE AN ANNUITY. The annuity may be converted to a lump sum later if the plan allows.

Also BEWARE the 50% amount is only good to the limit up to the PBGC 50% guaranteed amount. For example, if your lump pension calculates to $800K at age 55, you might think you could get the $400K and the remainder as an anuity. WRONG! The PBGC limit is $347K for a 55 year old.

Then note if the pension is less than 60% funded, no lump sums can be paid.

FOR YOU, you must find out the status of your plan as these limit go into effect April 1, 2009. You might want to get your lump as of March 1 by going in February.
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Old 12-24-2008, 09:46 AM   #10
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I was really glad I had a survivor annuity during the meltdown . It provides stability in my portfolio . It is also tied to health care . Had I taken a lump sum I would not be covered on their health care plan so it was an easy decision .
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Old 12-24-2008, 10:21 AM   #11
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Originally Posted by sailfish View Post
Can't decide whether to take the lump sum or monthly annuity when I exit in March of 2009. Rates are so low now, that CD's won't come as close as the annuity. This is a non COL joint annuity that ends at the death of Myself and spouse. Some outside annuities will return the principal at death. What have you done with the same choice as me?

I'm generally against annuites but this is a potential investment option that should be investigated thoroughly. You didn't give much info so I'll give you some thoughts to consider. Many are repeats of other comments but I think some are new.
  • How's your and your significant other's health? If not "excellent" the value of the annuity is probably not as good as it will appear to be in the next bullet.
  • How does the annuity payout compare with what is quoted for you on "" or Vanguard? In general, if you aren't significantly beating these quotes you're probably better off with the lump sum.
  • Is the "annuity" really a pension? If so, how much of your pension would fall under the pension insurance guidelines? These change based on how old you are when you retire. If you exceed this amount you may be at risk for some of your future benefits. If it's a true annuity, how much falls under your state's annuity insurance limit? Remember that this insurance is totally paid for by companies selling annuities in your state and does not represent the "full faith and credit" of your state.
  • Do you feel comfortable investing your retirement stash? You should be but some people aren't.
It's not an easy topic but it's worth you looking into your options. I personally have several very small pensions and annuities from past employers. I didn't have a choice of taking a lump sum.
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
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Old 12-24-2008, 10:23 AM   #12
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Originally Posted by 2B View Post
I'm generally against annuites...
This is a front runner for the 2008 Forum Understatement of the Year award...
Numbers is hard.

Retired in 2005 at age 58, no pension

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Old 12-24-2008, 10:56 AM   #13
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My two cents, I would take the lump sum (rolled over in an IRA) and put it in fixed income vehicles for safety and a security. I guess I would rather have control of the money rather than trusting anyone else.
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Old 12-24-2008, 10:56 AM   #14
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Well, if have some $ to hide from Uncle Sam and Taxes? That's what I'd be looking at and have someone do so as well for you..Espeically if you don't need the $.. and FYI> vangaurds are not Vanguards, tehy are just the the Insurance Co. they use..

and making 7.3% apy on my Treasuries 7 US Gov't bonds from 2000- 07' and now over 15% and 24% this yr? Thank you very much ! My Insurance agent is Not a happy Camper! lol
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Old 12-24-2008, 05:01 PM   #15
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Interesting discussion. Actually, I think the decision-making depends on the situation at the time. If bonds are stable and yielding a goodly amount, then, one might want to take the lump sum and roll it to an IRA. However, if the decision is made during a time of instability, one might want the security of the monthly payment -- knowing it will be stable (and assuming the employer is financially solid).


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