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Old 01-16-2015, 06:17 PM   #21
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I took the lump sum even though the pension was 95+% funded. Had I taken the pension, I would have received several monthly payments since my retirement, incurring some tax liability and depleting some of the lump sum. As it now stands, I have not had a need yet to withdraw any money, and when I do need it, I will control the amount of the withdrawals. I very much enjoy the control.
Did your lump sum roll into an IRA? If so, even if you don't need it you'll have to take it starting at 70.5. And you won't get to control the amounts, either. Except upwards. I'll be pushed into that boat then too, minus whatever I manage to convert to a Roth beforehand. With 11 years to go, hopefully I can make a decent sized dent.

Of course if you are going to need it between 59.5 and 70.5, then you're right. You'll have some control.
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Old 01-16-2015, 09:34 PM   #22
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Did your lump sum roll into an IRA? If so, even if you don't need it you'll have to take it starting at 70.5. And you won't get to control the amounts, either. Except upwards. I'll be pushed into that boat then too, minus whatever I manage to convert to a Roth beforehand. With 11 years to go, hopefully I can make a decent sized dent.

Of course if you are going to need it between 59.5 and 70.5, then you're right. You'll have some control.
Yes, I rolled it into an IRA. I ER'd last year at 60, and fully expected to have to start some withdrawals during 2014, but I got lucky and didn't have to. The Annuity would've kicked in immediately.

Still working on an investment allocation that will accommodate the withdrawals, though.
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Old 01-16-2015, 11:15 PM   #23
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When I retire I will have a similar choice, with roughly the same amounts. I plan to take the annuity for simplicity purposes, since we also have other savings. The pension + SS when we decide to take it will cover our living expenses and our withdrawals will be for "fun" stuff.

If I wanted to spend more time managing my money I would consider the lump sum, but once I retire I hope to simplify my financial life.
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Old 01-18-2015, 11:40 AM   #24
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Again thanks to everyone who has replied. I am still going back and forth but again leaning toward the pension. The feedback here has been helpful to me.
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Update- Pension Funding Information
Old 01-26-2015, 07:30 PM   #25
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Update- Pension Funding Information

Just as I was getting ready to send in my paperwork deciding on the annuity I received the most recent funding notice. Which, of course, gave me a pause. I thought I would post the information and see if it changes anyone’s mind in regard to my pension, especially as my pension will be greater than the guaranteed limit until I reach age 68. I do feel the organization I worked for is stable but it is in health care and who knows what will happen politically in the coming years.

I will send in the final paperwork on Wed.

Here is the information I received. I do not fully understand what the difference between the MAP-21 and non MAP-21 interest rates are and the paperwork is not that clear. Is anyone knowledgeable about this and it's significance in regards to the funding of the pension.

Funding Target Attainment:
92.32% with MAP-21 interest rate (IR), 75.69% without MAP-21 IR
Prior funding the year prior:
98% with MAP-21 IR , 80% without MAP-21 IR- 80%
The year before without MAP-21 IR was 80%

I really appreciate everyone's thoughts as I make this decision. Your thoughts have helped shape my decision.
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Old 01-27-2015, 03:04 AM   #26
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I learned something new about pensions today. Only Congress could add something about pension calculation in monster transportation bill. The essence of the MAP-21 provision is that it allows companies to fund pension on the assumption that these historically low interest rates won't last forever. So it allows companies to fund pension based on 25 years average interest rate rather than today's low rates.

The intermediate term effect is companies can get away with putting in less money now than the were before the change. This does increase the likelyhood of running out of money, if for instance we have a prolonged period of low interest rates and mediocre or worse stock returns.

The actual percentage of funding 72-92% concerns me less than the size of the drop 5-7% in one year. If it was my money before I sent in my paperwork. I'd find the person in HR or finance that is the pension expert and and ask him for an explanation.

There is one possible explanation which would not bother me. Typically pension average the pension returns over several years 3 to 5 and they often operate on June or Sept Calendar. So it is possible that horrible market declines of 2008, early 2009 were finally reflect last year in the pension. Any other decline would give me a pause.
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Old 01-27-2015, 05:43 AM   #27
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I notice a big drop in the lump sum amount from 2013 to 2014.
My plan send me a statement and I noticed it says they are calculating the lump with a 7.5% discount rate. So that explains it. The higher the rate the lower the lump. That rate is absolutely absurdly high. Some Megacorp lobbyist must have weaseled this change into the law.
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Old 01-27-2015, 09:00 AM   #28
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Thanks for your responses.
I will call HR today Clifp. The MAP-21 interest rate adjustment took me by surprise. If I can't get a good explanation I think I will go with the lump sum as I need to make a decision in the next couple of days. I can always buy an SPIA later when the interest rates hopefully increase some. I think overall I would feel more comfortable having a guaranteed income.

I don't usually vacillate so much over decisions. When I first thought of retiring I was strongly leaning toward the pension but now that the decision time is here I have a large degree of hesitation for some reason.
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Old 01-27-2015, 09:21 AM   #29
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You really can't go wrong either way. On one hand, your pension is rather large relative to the total financial picture. So, taking the lump sum and buying a SPIA later would allow you to customize the size of the annuity more to your liking. And as I said earlier, there are some tax and other consequences (ACA, Roth conversions) that would provide more flexibility under the lump sum option. On the other hand, DB pensions are a rarity, your payout ratio is pretty good, and it covers all your current expenses. Seems like a shame to let that opportunity get away. If the market goes into a decade-long funk right when you retire, you'll be kicking yourself. Unless your funding inquiries result in major concerns, I'd stick with the annuity.
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Old 01-27-2015, 09:39 AM   #30
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You really can't go wrong either way. On one hand, your pension is rather large relative to the total financial picture. So, taking the lump sum and buying a SPIA later would allow you to customize the size of the annuity more to your liking. And as I said earlier, there are some tax and other consequences (ACA, Roth conversions) that would provide more flexibility under the lump sum option. On the other hand, DB pensions are a rarity, your payout ratio is pretty good, and it covers all your current expenses. Seems like a shame to let that opportunity get away. If the market goes into a decade-long funk right when you retire, you'll be kicking yourself. Unless your funding inquiries result in major concerns, I'd stick with the annuity.
+1 on this sound thinking. A pension that covers your current expenses is something to take advantage IMHO.
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Old 01-28-2015, 06:57 PM   #31
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I thought I would let everyone know my decision which was to take the annuity. I talked with the retirement center regarding the funding. They do average over a 2-3 year period. I was also told if the funding fell below 80% for the MAG-21 that could affect lump sum payouts but would not affect annuity payments- interesting.

Essentially for me the simplicity of a "paycheck" and the fact that I will be more comfortable spending more in the early years with the annuity were the deciding factors. Also over a 30-40 year period with lower returns (I used 3 and 3.5% real to plan) the annuity had a better probability of success.

Thanks again to everyone for your input. It was very helpful in making me more comfortable with my decision. Now, on to having fun.
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Old 01-28-2015, 07:27 PM   #32
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Yes, I rolled it into an IRA. I ER'd last year at 60, and fully expected to have to start some withdrawals during 2014, but I got lucky and didn't have to. The Annuity would've kicked in immediately.

Still working on an investment allocation that will accommodate the withdrawals, though.
I opened a new fund in my IRA and just put my lump sum in Vanguard Balanced Admiral Index. So now I can see if the growth in the lump sum is better or worse than the pension.
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Old 01-28-2015, 07:41 PM   #33
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I thought I would let everyone know my decision which was to take the annuity. I talked with the retirement center regarding the funding. They do average over a 2-3 year period. I was also told if the funding fell below 80% for the MAG-21 that could affect lump sum payouts but would not affect annuity payments- interesting.

Essentially for me the simplicity of a "paycheck" and the fact that I will be more comfortable spending more in the early years with the annuity were the deciding factors. Also over a 30-40 year period with lower returns (I used 3 and 3.5% real to plan) the annuity had a better probability of success.

Thanks again to everyone for your input. It was very helpful in making me more comfortable with my decision. Now, on to having fun.
As I understand it once a plan falls below 80% lump sum payments are stopped.
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Old 01-29-2015, 01:23 AM   #34
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I thought I would let everyone know my decision which was to take the annuity. I talked with the retirement center regarding the funding. They do average over a 2-3 year period. I was also told if the funding fell below 80% for the MAG-21 that could affect lump sum payouts but would not affect annuity payments- interesting.

Essentially for me the simplicity of a "paycheck" and the fact that I will be more comfortable spending more in the early years with the annuity were the deciding factors. Also over a 30-40 year period with lower returns (I used 3 and 3.5% real to plan) the annuity had a better probability of success.

Thanks again to everyone for your input. It was very helpful in making me more comfortable with my decision. Now, on to having fun.

Good for you. Given your excellent financial position (well done BTW) I don't think there was a bad decision. I would have done the same.
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