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Calculator for Lump sum payout?
Old 12-26-2009, 02:26 PM   #1
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Calculator for Lump sum payout?

Greetings .... I am trying to find out which would be a better option .... A retirement payout of 6624.00/month....

or a lump sum of about 365000.00 and 5883.00/month ?
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Old 12-26-2009, 02:43 PM   #2
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Greetings .... I am trying to find out which would be a better option .... A retirement payout of 6624.00/month....

or a lump sum of about 365000.00 and 5883.00/month ?
What is your life expectancy? that's an important factor in the calculation. How many years do you expect to get the monthly payment in each scenario?
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Old 12-26-2009, 02:52 PM   #3
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Welcome to the forum.

I'm not aware of any lump sum vs. monthly benefit calculator other than using something like this to determine the monthly benefit you could expect if you used the lump sum to buy an immediate annuity. That should give you an idea if the $741 per month reduction is reasonable.
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Old 12-26-2009, 03:00 PM   #4
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I would definitely take the combination lump sum + monthly. Here's why.

Your annual payout is reduced is by 12*(6624-5883)=$8,892/year.

Your $365,000 lump sum can be invested at only 2.43% return to make up the loss in annual payout (8,892/365,0002.43%). If your pension has a COLA, you'd need to keep up with inflation but I would be willing to risk that.

You also have the advantage of spreading your risk. Should the pension fund run into problems, you have a chunk of cash.

And, congratulations on having a GREAT pension!

Steve
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Old 12-26-2009, 03:03 PM   #5
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Greetings .... I am trying to find out which would be a better option .... A retirement payout of 6624.00/month....

or a lump sum of about 365000.00 and 5883.00/month ?
I would take the $365000 and 5883 a month and you could replace the 741 a month if you only got 2.43% interest and keep the principal.
Seems a no brainer to me.
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Old 12-26-2009, 04:42 PM   #6
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What is your life expectancy? that's an important factor in the calculation. How many years do you expect to get the monthly payment in each scenario?
Sorry More info ..... Both amounts would be for life ...Both should have a 3% Cola begining on the 5th year ..... Also if it matters I can Defer the lumpsum into my 401K (357b) account ....I am 56 now no reason right now not to have a normal life expectancy ...Both parents are in their 80's (87,85) ..... The earliest this can happen will be Oct 2010 ... Thanks for all th feedback .....mike ....
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Old 12-26-2009, 06:58 PM   #7
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I would take the lump sum as much since there is always a financial risk in a pension of it going under and who knows if the pension guaranty fund will always be there.
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Old 12-26-2009, 08:33 PM   #8
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Also if it matters I can Defer the lumpsum into my 401K (357b) account .....

It matters. You need to roll it into something. unless you want to pay taxes on the entire lump sum distribution. Make sure it is rolled directly. If you accept a check, they will withhold a bunch, and you will have to make up the withholding until tax time if you want to roll the entire amount. A direct rollover (i.e. you never lay hands on a check) avoid this. Any major brokerage (Fidelity, Schwab, Vanguard, etc.) would be only too happy to help you and deal with most of the paperwork.
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Old 12-27-2009, 07:38 AM   #9
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The lump sum with partial pension sounds like the much better deal. Another factor you didn't mention is survivorship. Are you married? Does the pension component have a 100% survivor transfer to your spouse? The lump sum will.
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Old 12-27-2009, 09:48 AM   #10
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Just taking a quick look at it, I'd take the combo deal. Wouldn't leave all the eggs in one basket.
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Old 12-27-2009, 09:55 AM   #11
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Cash always comes in handy for life's little emergency's and of course toys.
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Old 12-30-2009, 07:10 AM   #12
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I would take the lump sum as much since there is always a financial risk in a pension of it going under and who knows if the pension guaranty fund will always be there.
Not to mention, PBGC has a cap on pensions replaced and it looks like you are way over the cap!

Wow nice pension!
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Old 12-30-2009, 07:47 AM   #13
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For what it is worth, my trusty HP 12c says,
34 yeas (90-56)
6% interest
If you look at future values
first option 8,812,061
second option 10,619,182

So it appears that the second option is the best
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Old 12-30-2009, 09:41 AM   #14
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The 3% automatic increases (assuming they continue forever) are significant. They turn the no-brainer into something that requires at least a little thought.

However, I'd still go for the lump sum because it spreads my risks and gives me flexibility. From an investment perspective, the $70k remaining pension (plus, eventually, SS) more than covers my basic expenses, so I could invest the lump sum pretty aggressively and do a "percent of current balance" withdrawal strategy.
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