Another lump sum pension offer
A former employer is offering me a $73k lump or $500/mo for life. Is this lump a good offer? Should I take it or leave it?
Here's my situation:
I'll be 62 next month. I currently have a "retirement" teaching job (low stress, flexible time) that I enjoy. It pays my living expenses and more, plus I have good health insurance. The job includes a pension benefit but it may be insignificant depending on how long I stay. I'll probably keep working until age 65 for the health insurance, or longer if I continue to like the work.
I have another pension which starts in January 2015. It's $1500 per month. SS of about $1800/mo will also be available in January, should I decide to take it then.
My living expenses are low, probably no more that 25k per year. I'm single (never married) and no kids. I have no debt. I own my house. I don't have lavish spending plans.
I have $1M in retirement accounts. I'll be required to take RMD's when I'm 70.5 years old. According to Vanguard's online RMD tool initial distributions would be about $45k per year if I started now. I think this means I won't be in a super low tax bracket in the future. Which in turn means the tax bite on the $500/mo pension payment will never be insignificant.
I also have another $1M in savings outside the retirement accounts.
If I'm calculating it correctly, the rate of return on the pension is 8.2% (500x12/73k). Income taxes would take 25% of that as long as I'm working. Even though I probably can't achieve an 8.2% rate of return without high risk I'm considering taking the lump and transferring it into in an IRA. I'll just let it grow with the possibility of buying longevity insurance or an immediate annuity later on.
What would you do? I look forward to reading your comments/opinions/recommendations.