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Old 02-11-2019, 04:18 PM   #21
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Old 02-11-2019, 04:54 PM   #22
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If you didn't have a second pension, SS, and $1.2M in additional assets, I'd take the pension, assuming it's safe. However, adding everything up, you'll eventually be under-spending your income by ~50%.

What about heirs? Do you want to leave something for the kids? If so, the answer is easy...take the lump sum, as 2% lower withdrawal rate on $1.4M isn't going to affect your lifestyle. If not, your choice, buy IMHO, I'd rather have full control of the $, and not rely on a pension guarantee company. Either way, you're fine, but what's left over may matter to you (or not!)!
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Old 02-12-2019, 02:58 AM   #23
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Originally Posted by Canoesmith View Post
OK. I'm 58, DW is 57. Both in good health. Parents both lived to mid 80's.

I'm retiring on July 5th of this year. That decision is made (although not announced).

I've got my official Defined Benefit numbers from my actuaries - and here are the two choices I am considering.

Pension annuity of $7214/mo with 100% spouse survivorship but NO Cola or
$1,426,000 in lump sum that I can roll over into my Lincoln 403b at fixed 3.5% to start with.

One of the "draws" of the lump sum would be my ability to control taxable income for ACA subsidies - but that is for 7 - 8 years, with 30 years of retirement ahead, so it seems like that reason alone could be short-sighted.

Even with the 100% survivorship my annuity payout appears to be over 6% - so that seems a good deal. But the lump sum is very tempting.

Additional pertinent info. Have another pension that I plan to take in late 2025 that will pay $2000/mo with cola
and If I delay my SS until I'm 70 - my DW and my combined estimate for SS will be ~ $60k/yr.

I have about $1.2M in other monetary/investment assets right now - and absolutely NO debt of any kind with a retirement baseline budget of $72k.

Knowing you are all very good at this I'd love your thoughts - Annuity or Lump Sum?

I appreciate your comments. I have waffled both directions over the past few weeks.

Hi. I'm in a similar position to you and haven't made my final decision yet. The advice I have received so far is to keep the pension. Two main reasons are:

a) With a similar return of 6% this is higher than the likely returns the lump sum would make. In the UK the Advisors carry out a Critical Yield Analysis which basically calculates this accurately and is used as the basis of the advice.

b) you have other investments so you have a nice balance between a fixed income pension and enough other investments to give you the flexibility you would like.


Clearly, there is a potential loss of inheritance but peace of mind in what is a turbulent financial market has to be considered too?


I would suggest you take professional financial advice as this is a big issue (if you haven't done already) and it is good to look at the cash flow projections to help with the flexibility you have. That's something I'm doing with my Advisor at the moment.
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Old 02-12-2019, 03:15 AM   #24
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From a numbers basis the annuity is best. But if there is no PBGC backstop thatís an awful lot of cash to have with a single annuity provider where there is little protection from the state guarantee associations (usually like 200k guaranteed). If you can do it 50/50 I would do that. Otherwise a very tough decision indeed.
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Old 02-12-2019, 05:12 AM   #25
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Originally Posted by gwraigty View Post
Lump sum: $1,426,000 x 3.5% = $49,910 annually.

Annuity: $7,214 x 12 = $86,568 annually. $86,568/$1,426,000 = 6.07% annual yield.

$1,426,000/$86,568 = 16.47 years break even point.

I can see why it's a difficult decision. That said, how secure is the pension? Do you have any heirs who would benefit from the lump sum? Are you considering investment options that might earn something between 3.5% and 6.07%?
That said, how secure is the pension? This is the big question. There were two men I knew in my former town. Both had been pilots for a major airline, then retired within a year or two of each other. One took the pension the other the lump sum. The airline went bankrupt, the pension pilot ended up receiving $25,000 from the PCGE I think it was called. He was getting $125K originally. Lucky for him he lived cheaply and had other savings. The pilot that took the lump sum lived the life of Riley. I was self employed, so no pension, but I like to be able to see my investments secure at a major brokerage knowing they won't go away by bankruptcy.
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Old 02-12-2019, 07:09 AM   #26
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The dollar amounts were different but the other factors of my decision were very similar. I chose the lump sum.

Ultimately for me, having my money tied up and managed by a pension administrator for the next 30íish years was a bigger risk/gamble than me managing the funds on my own...
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Old 02-12-2019, 05:51 PM   #27
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Just curious, did you make a decision on how you are going to take your pension?
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Old 02-12-2019, 06:29 PM   #28
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Just curious, did you make a decision on how you are going to take your pension?
No, not yet as I have some time to waffle more. Responses here are running close to 50/50. But Iíd say right now Iím leaning towards the annuity and Iíll tell you why.

1. Iím not a brave investor, so a safe ready return of 6% with 100% spouse survivorship (almost like an insurance policy) makes me less anxious.
2. Iíd like to not worry about the stock market with all of my money when Iím retired. Iíll still have a bit north of 1M working for me even with the annuity, and I believe I like the set and forget part of the annuity.
3. With this annuity, and the one in 2025 and SS Iíll have more income than I will most likely need post 70 YOA and I can continue to save even in retirement - or use that money to pay for LTC if needed.
4. For heirs, we will gift along the way, and left over $ and paid off RE will be a nice inheritance
5. The annuity will be through New York Life. A++ rated and one of the very strongest companies in the business, so While there is always concern, it isnít like my pension will be paid out by a small business for the next 35 years.

Also, and itís just a mind game, my lump sum last year was projected at over $100k higher than it is right now. It has gone down due to rising interest rates. It doesnít mean much, but it was irritating to see it drop. It wonít drop again before my decision, but that drop made the annuity look even better.
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Old 02-12-2019, 06:38 PM   #29
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In reality, you have a no lose proposition.There is no BAD choice, and the OPTIMIUM choice can't be known until you are both gone.

Today, I would say take the lump sum. Five years ago, take the sure thing pension. Enjoy your retirement!
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Old 02-12-2019, 06:55 PM   #30
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Outstanding great reasons and like most say, it comes down to what you feel comfortable with no right or wrong way.

Thanks and good luck.
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Old 02-12-2019, 06:59 PM   #31
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Do keep in mind that with no cola on the pension that **if** we get into an inflationary spiral you could quickly lose purchasing power.
If the employer would go 50 / 50 that would be really ideal. Fixed income and more to add to the portfolio for growth. You are still young with (statistically) a lot of years ahead of you.
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Old 02-12-2019, 07:20 PM   #32
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^ If you pass away in a few years after retirement and your wife passes away a few years later, then what happens? Does the rest of the money just stay with the pension company?
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Old 02-13-2019, 12:14 AM   #33
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Originally Posted by flintnational View Post
Does anyone know if a Corp. pension transferred to a life insurer, in this case New York Life, is backed stopped by the PBGC? If not, that would be an additional risk in taking the annuity option.
No, I don't think so.... but NYL is as solid a company as you can get... far ahead of the PBGC... and in this case the OP's pension exceeds the PBGC limit anyway.
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Old 02-13-2019, 12:29 AM   #34
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Quote:
Originally Posted by Canoesmith View Post
No, not yet as I have some time to waffle more. Responses here are running close to 50/50. But I’d say right now I’m leaning towards the annuity and I’ll tell you why.

1. I’m not a brave investor, so a safe ready return of 6% with 100% spouse survivorship (almost like an insurance policy) makes me less anxious.
2. I’d like to not worry about the stock market with all of my money when I’m retired. I’ll still have a bit north of 1M working for me even with the annuity, and I believe I like the set and forget part of the annuity.
3. With this annuity, and the one in 2025 and SS I’ll have more income than I will most likely need post 70 YOA and I can continue to save even in retirement - or use that money to pay for LTC if needed.
4. For heirs, we will gift along the way, and left over $ and paid off RE will be a nice inheritance
5. The annuity will be through New York Life. A++ rated and one of the very strongest companies in the business, so While there is always concern, it isn’t like my pension will be paid out by a small business for the next 35 years.

Also, and it’s just a mind game, my lump sum last year was projected at over $100k higher than it is right now. It has gone down due to rising interest rates. It doesn’t mean much, but it was irritating to see it drop. It won’t drop again before my decision, but that drop made the annuity look even better.
To be clear though, you are not earning a "safe and steady return of 6%"... you are getting a 6% payout rate. That said, a 6% payout rate is attractive compared to immediate annuity pricing. If you and your DW perish within the first 17 years then your return is actually negative as you never get more than what you pay in.

I agree with you on NYL... rock solid.

While I would generally advocate taking the pension where one can get a better payout than the immediate annuity marketplace I would not in this case... because SS and your other COLAed pension will cover more than 117% of your spending once they are both online so I don't see having over 117% of your annual spending needs covered by pensions and SS.

The other reason that I don't think it is a good idea is that if you take the pension and head off having fund and you and DW die prematurely, that $1.4 million goes "POOF". It happens. A work colleague of mine had his parents retire and travel and they were both killed in a bus accident in South America. Or you could both perish in a car accident. And $1.4 million goes "POOF" never to be seen again by your heirs or charities.

There is no need to worry about the stock market... you could dump the $1.426 million in Wellesley, set up a $7,214/month automatic redemption and go have fun. Set it and forget it.
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Old 02-13-2019, 12:39 AM   #35
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To illustrate what I was referring to in the last post, below is your "return" based on how long you live:

Lump Sum  1,426,000
Monthly benefit  7,214
   
   
AgenIRR
580 
591-98.3%
602-80.4%
613-59.9%
624-44.3%
635-33.3%
646-25.3%
657-19.4%
668-14.9%
679-11.5%
6810-8.8%
6911-6.6%
7012-4.9%
7113-3.4%
7214-2.2%
7315-1.2%
7416-0.4%
75170.4%
76181.0%
77191.5%
78202.0%
79212.4%
80222.8%
81233.1%
82243.4%
83253.7%
84263.9%
85274.1%
86284.3%
87294.4%
88304.6%
89314.7%
90324.8%
91334.9%
92345.0%
93355.1%
94365.2%
95375.3%
96385.4%
97395.4%
98405.5%
99415.5%
100425.6%
101435.6%
102445.7%
103455.7%
104465.8%
105475.8%

As a reference point, Wellesley' returns are below:
Attached Images
File Type: png Capture.PNG (15.8 KB, 35 views)
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Old 02-13-2019, 03:38 AM   #36
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I would take the lump sum. That is just too large an amount for too long a payback. In addition to as Pb4uski said, sometimes it’s not about the percentage numbers, but the absolute amounts. It’s one thing to take a needed $721/mo pension instead of a $140k lump sum (where the potential loss of the lump sum is not that damaging to your NW) and entirely different thing to take a $7214/mo instead of a 1.4M lump sum even though the percentage math is the same, so they should warrant the same decision. I absolutely wish my company would offer a lump sum buyout. Based on your numbers, I would have to decide on about a $1M lump sum. It would be an easy decision for me.
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Old 02-13-2019, 06:39 AM   #37
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ETA: It looks like pb4uski beat me to the break even point analysis.

OP, here is another way to look at the decision. Assuming you take the lump sum, the following shows the average annual return you need to achieve to match the pension payout at various ages. If you can beat this return or if both annuitants die early, you are better off with the lump sum. If you cannot beat this return you are better off with the pension. IOW, these are the return break even points at various ages. (Age refers to the death age of the last surviving spouse. Return refers to the average annual return required to match the pension. Probability refers to the chance at least one spouse will attain this age. This is based on the joint pension option.)

Age....Return.....Probability*

80......3.1%.........85%
85......4.0%.........68%
90......4.7%.........43%
95......5.2%.........18%

Age 90 Example
 4.70%
 $86,568
 $1,426,000
  
  
58$1,416,227
59$1,396,222
60$1,375,276
61$1,353,346
62$1,330,385
63$1,306,345
64$1,281,176
65$1,254,823
66$1,227,232
67$1,198,343
68$1,168,098
69$1,136,430
70$1,103,274
71$1,068,560
72$1,032,215
73$994,161
74$954,318
75$912,603
76$868,928
77$823,199
78$775,322
79$725,194
80$672,710
81$617,759
82$560,226
83$499,988
84$436,920
85$370,887
86$301,751
87$229,365
88$153,577
89$74,227
90-$8,852
91-$95,836
92-$186,908
93-$282,261
94-$382,095
95-$486,622

ETA: *Added Kitces joint mortality percentages.
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Old 02-13-2019, 06:51 AM   #38
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Can someone answer the question, if you take a pension like in this case, what happens to the funds if both pass away lets say 2 years of receiving the pension?
This maybe something to think about also, before one makes a decision. Can anyone answer that question I have no idea what would happen to all that money left on the table??
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Old 02-13-2019, 07:00 AM   #39
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Can someone answer the question, if you take a pension like in this case, what happens to the funds if both pass away lets say 2 years of receiving the pension?
This maybe something to think about also, before one makes a decision. Can anyone answer that question I have no idea what would happen to all that money left on the table??
The payments stop and the estate receives nothing. The insurance company keeps all of the funds. But, the reserve is also true. If you live longer than expected, the insurance company is required to keep making payments. (Some annuities have options that require payments for a certain number of years, say 10 or 20.) In this case the payments would continue per the agreement to the heirs. I do not think the OP has the guaranteed payment option.
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Old 02-13-2019, 07:54 AM   #40
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DO you have the ability to roll the lump sum to an IRA - now or in the future? We had a plan that had to stay with the trustee plan for one year, but rolled it over as soon as we could.
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