Annuity or lump sum poll

[clifp]

Harley, I just wanted to say that in all the lump sum vs annuities questions I've answered, I think yours is only the 2nd or 3rd time I've suggested taking the annuity.

Most of the time I can do 5 minute check on Vanguard or the TSP calculator and see that a 3rd party offers a better annuity or the interest from a Pen Fed CD is within shouting distance of the annuity distribution. In your case, the payout from your annuity was significantly higher than anything else I saw, hence my recommendation to take it.

[chinaco]

Quote:

Originally Posted by Texas Proud A couple of points.... you assume that the annuity payments does not include a profit... I think it does... IOW, you could get the lump sum OR an annuity that was bought from the lump sum ammount... so I think you could buy an equivalent annuity the same day... You also do not factor in the costs of the pros in your example... If I bought similar securities etc. etc... I should be able to beat the pros because I am not paying THEM to buy these securites... and their cost is over 100 BP.. maybe even 200BPs.... Now, it is true that having a smaller amount of money means it is harder to diversify... but that can be taken care of by buying ETFs... So, unless the annuity was based on something else besides the market rates at the time of the annuity, you should be able to beat the annuity...

I am not assuming too much of anything! I was trying to illustrate a practical point... not an academic discussion of possibilities. I suppose anything is possible in the broadest sense. But there is unlikely to be an arbitrage opportunity (at least of any significance) unless the annuity is inappropriately priced or some aspect of the pension lump calculation is not typical. Insurance companies stay on top of rates (and changes)... and they like their fees!



My point was about not assuming and what is the goal anyway...

• Do the analysis! Don't assume anything. It is complicated, but it needs to be done to make the best decision.
• Is the goal to invest (take more risk for a potential gain) or have an stable income. Yes some think they will have their cake and eat it too... Most will just wind up with less cake unless they die early!!! then someone else gets the cake!

Sounds like you took a Lump.... If you did, I hope you did your analysis.

[harley]

This is a hypothetical question, but in my personal retirement decision I took the lump sum. I did all the math, which showed the lump sum to be the better choice, based on 2006 assumptions. I wouldn't be making the same assumptions these days, being older and sadly wiser. Luckily when I rolled the lump sum into an IRA I left it in cash (procrastination, not planning), so it's still got it's full value despite the crash. Probably breaking about even now after the recent rise in the market.

But still, the overriding deciding factor was that I was 50, and hopefully had a 40 year life expectancy (I guess I still tend to optimism ). I just didn't think that my megacorp would still be around to make the payments. I might be overly cynical on that part, but management was making so many dumb decisions that it tipped my decision toward the lump sum. My megacorp would be considered one of the biggest and safest out there, but 40 years is beyond my acceptable risk level. I have trust issues, and would rather blame myself for any mistakes than curse the darkness.

[clifp]

Harley just realized that I got you confused with Golfnut who asked the Lump Sum vs Annuity recently.

[golfnut]

Quote:

Originally Posted by clifp Harley just realized that I got you confused with Golfnut who asked the Lump Sum vs Annuity recently.

Very similar threads indeed ! Also, very timely as I need to make this decision real soon. Lump sum of $135,000 or non-cola yearly payout of $8,400 (joint survive) ? Decisions, decisions!

[chinaco]

Quote:

Originally Posted by harley This is a hypothetical question, but in my personal retirement decision I took the lump sum. I did all the math, which showed the lump sum to be the better choice, based on 2006 assumptions. I wouldn't be making the same assumptions these days, being older and sadly wiser. Luckily when I rolled the lump sum into an IRA I left it in cash (procrastination, not planning), so it's still got it's full value despite the crash. Probably breaking about even now after the recent rise in the market. But still, the overriding deciding factor was that I was 50, and hopefully had a 40 year life expectancy (I guess I still tend to optimism ). I just didn't think that my megacorp would still be around to make the payments. I might be overly cynical on that part, but management was making so many dumb decisions that it tipped my decision toward the lump sum. My megacorp would be considered one of the biggest and safest out there, but 40 years is beyond my acceptable risk level. I have trust issues, and would rather blame myself for any mistakes than curse the darkness.

Taking a lump sum is not necessarily a bad decision.... it could be the best decision for certain people and certain situations.

I got on the soap box because I didn't want people who read this thread to automatically jump to the conclusion that a pension payout (annuity income) is bad deal.

[Texas Proud]

Quote:

Originally Posted by chinaco I am not assuming too much of anything! I was trying to illustrate a practical point... not an academic discussion of possibilities. I suppose anything is possible in the broadest sense. But there is unlikely to be an arbitrage opportunity (at least of any significance) unless the annuity is inappropriately priced or some aspect of the pension lump calculation is not typical. Insurance companies stay on top of rates (and changes)... and they like their fees! My point was about not assuming and what is the goal anyway... Do the analysis! Don't assume anything. It is complicated, but it needs to be done to make the best decision. Is the goal to invest (take more risk for a potential gain) or have an stable income. Yes some think they will have their cake and eat it too... Most will just wind up with less cake unless they die early!!! then someone else gets the cake! Sounds like you took a Lump.... If you did, I hope you did your analysis.

I have not reached the age yet of when I can get a lump or annuity... but the amount of money we are talking about for me is pretty small...

But, when I buy lotto tickets, I pick lump... the annuity is not that great..

I agree that you have to do your calculation... and lumps are not for everybody.... but the post I responded to seemed to be saying that you could not beat the pros... also that taking the annuity is better than taking a lump and buying an annuity... I think both are not correct stmts and I just responded to them....

I do agree there are many people who should take annuities... I recommended it for 2 of my sisters and my BIL... their annuity was based on work record etc. and not the amount of money they would have received from the lump... so it was a better deal...

[harley]

Quote:

Originally Posted by clifp Harley just realized that I got you confused with Golfnut who asked the Lump Sum vs Annuity recently.

Not a problem. As I said in the OP, the recent spate of Lump Sum vs. Annuity questions got me curious about the breakdown of the people on this forum. That's all this was, scratching that itch. I'm still surprised at the numbers. When I posted the poll I would have guessed 50/50 or annuity leaning. I guess the people here have a higher risk tolerance than I thought. Glad it's not just me. I'm always happier in the middle of the herd.

[obgyn65]

Hello Golfnut - In case you are asking for our opinion, I would take the payout.

Quote:

Originally Posted by golfnut Very similar threads indeed ! Also, very timely as I need to make this decision real soon. Lump sum of $135,000 or non-cola yearly payout of $8,400 (joint survive) ? Decisions, decisions!