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Converting DC accumulation to DB pension
Old 02-07-2015, 11:38 PM   #1
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Converting DC accumulation to DB pension

Well I'm about to take almost a quarter of my tax deferred DC savings and buy into the the MA state pension plan. The numbers look good, but I'll expect a number of comments about the underfunding of state pensions.

I'm 53.5 and will be rolling $263k into the state DB plan which will give me an single life annual income of $19800 starting at 55, or I can take $19600 and have a beneficiary inherit the balance and interest of the pension if I die early. There's a COLA (currently capped at 3%) on $13500 of the pension. The initial payout rate is 7% and interest rate assuming I make it to age 84 is 7.5%.

I was a bit reluctant to "spend" so much on a DB plan just in case I died early as could not leave as much to my grand-niece, but the lump sum benefit is a nice option. If I die early she gets a big payout and if I live a long time the pension will have been a great investment/insurance policy. I intend to change my AA from 60/40 to something closer to 80/20 once the pension is bought.

What do you think?
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Old 02-08-2015, 11:45 AM   #2
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I am assuming you are using a 1035 exchange, so no tax consequences? How many years are you buying?
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Old 02-08-2015, 12:45 PM   #3
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Quote:
Originally Posted by Helios View Post
I am assuming you are using a 1035 exchange, so no tax consequences? How many years are you buying?
It's all taken care of by the state. They had to get a special ruling form the IRS and the state legislature had to pass a special law. The money is going from a tax deferred state DC plan to a tax deferred state DB plan so there are no tax state or federal consequences.

I'm buying 10 years
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Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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