Good article on annuity vs lump sum

[meierlde]

We have the question coming up in 4 years on DW's pension plan from her former employer CitiBank. What I want to see is the pay out from the annuity coming out of the pension plan as compared to the pay out on the same money if we purchased the annuity at retail. If they are the same, I do not see the point. I can buy the same annuity any time. We might as well roll the money into an IRA and wait for better interest rates. If it is better, perhaps because Citi gets better than street rates or pays less or no fees, we might go for it. At this point the money is earning 6% so we are letting it ride until she turns 70, at which time we must make the decision.

Of course if you go with the IRA plan in 1/2 year you go to RMDs which start out at 1/27 the balance in the first year and go up.

 

[ZMAN]

meierlde: Good point!

 

[Sunset]

Note that the decision re SS benefits also needs to factor in the issue of RMD's at some point its better to get some income earlier so that the tax bite due to RMDs is not so great.

True, as long as your savings are within a certain range, and this range would vary depending upon the mixture of tax-sheltered vs regular vs Roth savings.

In general if savings are low RMD does not matter.
If savings are really high , then waiting until 70 allows greater withdrawals of RMD susceptible funds prior to the RMD date.