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Old 01-22-2016, 04:00 PM   #21
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I want to say thank you for all the thoughtful responses and all the food for thought. This lump sum vs "annuity" is in addition to a pension that basically covers living expenses. I don't have much more in savings ($100k in IRA). You have given me some good questions to ask before signing papers and more things to research. I vacillate between the two options. I did find out that I can set the amount. So, perhaps I keep half the money in the account and roll half into a life time benefit? I was telling my wife about this site and she was amazed that so many people would talk to and help a total stranger. So, thanks again for being some great people.


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Old 01-22-2016, 09:19 PM   #22
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Originally Posted by Backdraft57 View Post
I want to say thank you for all the thoughtful responses and all the food for thought. This lump sum vs "annuity" is in addition to a pension that basically covers living expenses. I don't have much more in savings ($100k in IRA). You have given me some good questions to ask before signing papers and more things to research. I vacillate between the two options. I did find out that I can set the amount. So, perhaps I keep half the money in the account and roll half into a life time benefit? I was telling my wife about this site and she was amazed that so many people would talk to and help a total stranger. So, thanks again for being some great people.


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I participate in 3 forums with regularity and I can say beyond the shadow of a doubt that the folks here are the best!

I like the idea of splitting the amount; for me that would be a better option. Definitely more numbers to run, but for most of the financial minds here, we love the calculator!

Sent via mobile device. Please excuse any grammatical errors.
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Old 01-23-2016, 06:48 AM   #23
Recycles dryer sheets
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No but you can see with a spreadsheet what the return on your premium is depending on your longevity. If you die early, you lose. If you live long, you prosper. The rate of return converges to the payout rate if you survive long.

Lump Sum 343,000
Monthly benefit 2,000
  
nIRR
0 
1-97.9%
2-78.5%
3-57.1%
4-41.4%
5-30.3%
6-22.4%
7-16.7%
8-12.4%
9-9.1%
10-6.5%
11-4.4%
12-2.8%
13-1.4%
14-0.3%
150.6%
161.4%
172.1%
182.7%
193.2%
203.6%
214.0%
224.3%
234.6%
244.9%
255.1%
265.3%
275.5%
285.6%
295.8%
305.9%
316.0%
326.1%
336.2%
346.3%
356.4%
366.4%
376.5%
386.6%
396.6%
406.7%
Did you do this with a calculator or a speadsheet? If you used a calculator I'd like to know where you got it- thanks!
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Old 01-23-2016, 07:10 AM   #24
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I'm kind of a control freak about wanting to be able to get my hands on my money if I need to. I don't know how old you are, but I wouldn't feel comfortable with $100 K emergency cash for all of my retirement, even if all of my expenses are covered. The rate is good though- I would consider taking at least a portion in cash and roll it into your IRA.
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Old 01-23-2016, 08:44 AM   #25
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Did you do this with a calculator or a speadsheet? If you used a calculator I'd like to know where you got it- thanks!
It's a spreadsheet. It just calculates the IRR (aka the interest rate that causes the present value of the cash flows to be zero where the time zero outflow is the premium and the subsequent inflows are the pension benefits) assuming that you live a certain number of years using Excel's RATE function.

The Excel formula is: =(1+RATE([number of years]*12, [monthly benefit],[-lumpsum]))^12-1
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Old 01-23-2016, 09:31 AM   #26
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Old 01-23-2016, 11:53 AM   #27
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I'm kind of a control freak about wanting to be able to get my hands on my money if I need to. I don't know how old you are, but I wouldn't feel comfortable with $100 K emergency cash for all of my retirement, even if all of my expenses are covered. The rate is good though- I would consider taking at least a portion in cash and roll it into your IRA.
OP said his pension covers his expenses, and this would add an extra $24,000 per year to his pension.

So there would be surplus of cash that should build up over the years for emergencies, even when he spent some of that extra cash flow each year. So really his savings would increase each year.
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