Another Lump Sum vs Pension vs Early Pension

[38Chevy454]

Requesting some help from you all. A long-time ago employer has sent me an offer. No big money involved, and it is kind of in the noise for general budget to be honest. Trying to balance all of the variables and figure out what option to take. Here are the numbers:
1) Lump Sum = $33K, payable by Dec 1 this year.
2) Early Pension Option = $162/month, payments also starting Dec 1 this year. Equivalent to about 5.9% of lump sum annually.
3) Std Pension = $323/month, payments starting Dec 1 six years from now (close enough, technically when I turn 60, my birthday is in Dec). Equivalent to 11.8% of lump sum annually.

The pensions do have surviving spouse 50% as included, or 75% spouse option.

If I do the time value of money calculation and use 6% return as my value (being conservative, as I would likely invest 100% equities), this is what I get for age 66 (12 years from now, I will be 54 in Dec):
1) Lump Sum, compounding monthly for 12 years = $67.5K
2) Early Pension, $162/month for 12 years = $34K
3) Std Pension, $323/month for 6 years = $27.9K

The same values for age 72 (18 years from now) and 6% return:
1) Lump Sum, compounding monthly for 18 years = $96.7K
2) Early Pension, $162/month for 18 years = $62.7K
3) Std Pension, $323/month for 12 years = $67.8K

So it seems that the lump sum is the better choice? My main concern is did I make an error in my calculations or assumptions? I am also not too excited about the lump sum being paid this year, as it will get the full tax rate consequence 25% rate since I worked good portion of this year; just retired approx 1 month ago. I can roll the lump sum into a pre-tax IRA, but am already going to be pressed to avoid RMD's tax rates at the higher values. So not sure if this would help vs just pay the tax this year and have the cash to invest. Having just moved and building a new house and detached garage, I will be spending more this year and next than subsequent years.

I appreciate your thoughts and opinions to help me decide.

 

[38Chevy454]

Anyone have opinions? Agree or disagree with my calculations and assumptions?

 

[Big_Hitter]

are you taking into account the future annuity payments?

your age 66 and age 72 calculations seem to be missing that piece

 

[capjak]

Based on immediate annuity.com, 33,000 premium for a 54 year old, your annuity payments would be significantly lower than what the Pension offers so it sounds like the Pension is a good value, but as you state you can probably grow the 33,000 at a higher rate (unless the market moving forward changes significantly).

I guess do you need the $33,000? How confident are you that you can yield 6% over the next 30-45 years? Can you use it to fund a Roth so it grows tax free?

Does it make you feel better to have a base/floor income via this pension?

 

[38Chevy454]

B_H, not sure I follow your question. Both values are for monthly payments starting at 54 or 60, and using a 6% growth rate as if they were just invested.

The $33K is not needed, and I had always planned to have the std pension at 60. This is a new offer. The pension is non-COLA. I have another pension I get now that is approx 20% of my budget ($1300/mo). DW will get SS starting next year about $1900/mo. So between the current pension and soon to be SS, it covers about 50% of budget. The base/floor is pretty much covered, rest is the discretionary portion of budget and subject to fluctuation and adjustments as needed.

Invested in equities I am pretty sure I can get 6% or more return over 12-18 years period I used. Of course equities will never be equal each year, with ups and downs; but over longer period I believe 6% is conservative. I thought about the Roth option, that's a good idea to look into more.

I have good confidence in the company pension fund being able to continue, that is not a risk to me. It is a 2-letter very large company that just changed CEO's.

 

[pb4uski]

....I am also not too excited about the lump sum being paid this year, as it will get the full tax rate consequence 25% rate since I worked good portion of this year; just retired approx 1 month ago. I can roll the lump sum into a pre-tax IRA, but am already going to be pressed to avoid RMD's tax rates at the higher values. So not sure if this would help vs just pay the tax this year and have the cash to invest. Having just moved and building a new house and detached garage, I will be spending more this year and next than subsequent years.

I appreciate your thoughts and opinions to help me decide.

If you do decide the lump sum, it would not be taxable unless you took it in cash.... to avoid the high tax bite since you are still working just roll it into an IRA and take it when your tax rate is lower once you have stopped working.

To be honest, given the relatively small amounts involved, the annuity v lump sum decision probably isn't important.

 

[racy]

Requesting some help from you all... No big money involved, and it is kind of in the noise for general budget to be honest. ... I appreciate your thoughts and opinions to help me decide.

If, as you say, it's "noise", then take the lump and buy a new Chevy