Investment question...

[MrFlish]

I just received a pension buyout offer consisting of the following options.

1. 200k lump sum. Which I'd roll into my Total Stock Market (VTSAX) IRA fund (current value ~1.1mm)
2. $1350 single life (non-COLA'ed) annuity that begins on 65th birthday. (I'm currently 58)

I'm interested in hearing the groups thoughts and opinions on which direction I might consider.


P.S. posted this over on the Bogleheads site as well..

Thanks in advance for the input...

[braumeister]

If you look at https://www.immediateannuities.com you can see what you could do yourself with a SPIA from the lump sum and compare, but there are other issues to consider.

[marko]

Quote:

Originally Posted by braumeister ... but there are other issues to consider.

IMO, inflation should be the main consideration. You've got maybe 30 years ahead of you.

(I always remember my dad, back in the 60's saying: Oh, he makes good money...maybe $10,000)

[COcheesehead]

Run your own numbers, but generally the lump sum favors the payer, not the payee.

[marko]

Quote:

Originally Posted by COcheesehead Run your own numbers, but generally the lump sum favors the payer, not the payee.

I took a lump sum 13 years ago and invested. Pretty much doubled it since then even with withdrawals.

Again, inflation is the big killer IMO; a non-COLA'd pension or annuity seems like a short term benefit to me and OP is only 58 y.o.

[COcheesehead]

Quote:

Originally Posted by marko I took a lump sum 13 years ago and invested. Pretty much doubled it since then even with withdrawals. Again, inflation is the big killer IMO; a non-COLA'd pension or annuity seems like a short term benefit to me and OP is only 58 y.o.

I missed the non cola part. You’re probably right.

[Another Reader]

Quote:

Originally Posted by MrFlish I just received a pension buyout offer consisting of the following options. 1. 200k lump sum. Which I'd roll into my Total Stock Market (VTSAX) IRA fund (current value ~1.1mm) 2. $1350 single life (non-COLA'ed) annuity that begins on 65th birthday. (I'm currently 58) I'm interested in hearing the groups thoughts and opinions on which direction I might consider. P.S. posted this over on the Bogleheads site as well.. Thanks in advance for the input...

What are the terms of your current pension?

[MrFlish]

Quote:

Originally Posted by Another Reader What are the terms of your current pension?

Same as option #2, 1350 single life @ 65.

I'm leaning towards the rollover as I feel like I'd have more investment control and access to the money rather than getting locked in to an insurance annuity.

[MrFlish]

Quote:

Originally Posted by COcheesehead I missed the non cola part. You’re probably right.

I'm leaning towards the rollover as I feel like I'd have more investment control and access to the money rather than getting locked in to an insurance annuity.

[MrFlish]

Quote:

Originally Posted by marko I took a lump sum 13 years ago and invested. Pretty much doubled it since then even with withdrawals. Again, inflation is the big killer IMO; a non-COLA'd pension or annuity seems like a short term benefit to me and OP is only 58 y.o.

I'm thinking the same way.

[MrFlish]

Quote:

Originally Posted by marko IMO, inflation should be the main consideration. You've got maybe 30 years ahead of you. (I always remember my dad, back in the 60's saying: Oh, he makes good money...maybe $10,000)

Agree...

[DatumPoint5]

A "bird in your hand" is ALWAYS worth more than "two in the bush"!?!

Lump sum.

[MrFlish]

Quote:

Originally Posted by DatumPoint5 A "bird in your hand" is ALWAYS worth more than "two in the bush"!?! Lump sum.

Good point...

[CardsFan]

Just for kicks, I ran a few calculations. If you take the lump sum today, invest it at 3% (CD's?) for 7 years, you will have a future worth of about $246,000. If you leave this invested at 3% and take the same $1350 out each month, you will exhaust the funds in 20 years (age 85). So, assuming the insurance company has run similar numbers, they are betting you will die sooner, and they take the rest. I guess it depends on when YOU plan to die!

In all seriousness, I would take the lump sum.

[conversationalphrase]

If you take the lump sum now is it taxed?

[Hermit]

In the very low interest environment of the last 5 years, I think I have done alright with my non-COLA pension as opposed to taking the lump sum. It pays the majority of my basic living expenses and will bridge me to 70 (two more years) when I will start SS payments on my account. After 70, until inflation goes crazy, I will probably be adding to my stash with the pension. Would I have more money when I die if I had taken the lump sum? Who knows?

[pb4uski]

According to immediateannuities.com, if you put the $200,000 lump sun an IRA and bought a deferred payout annuity that starts paying benefits in 7 years at age 65 then you could choose to receive $1,506/month for life beginning at age 65 or $1,367/month with a guarantee that you or your heirs receive benefits that are at least equal to the $200,000 premium.

Both beat the $1,350/month for life beginning at age 65 with no guaranteed return of the lump sum offered by your employer so I would favor the lump sum rolled into an IRA. IF you have little guaranteed income or are risk averse then you could buy an annuity with some or all of the lump sum... that would be a separate decision.

[MrFlish]

Quote:

Originally Posted by conversationalphrase If you take the lump sum now is it taxed?

I can defer taxation by rolling it into our IRA, otherwise it would be treated as income and taxed accordingly.

[MrFlish]

Quote:

Originally Posted by CardsFan Just for kicks, I ran a few calculations. If you take the lump sum today, invest it at 3% (CD's?) for 7 years, you will have a future worth of about $246,000. If you leave this invested at 3% and take the same $1350 out each month, you will exhaust the funds in 20 years (age 85). So, assuming the insurance company has run similar numbers, they are betting you will die sooner, and they take the rest. I guess it depends on when YOU plan to die! In all seriousness, I would take the lump sum.

Thanks!!!

[MrFlish]

Quote:

Originally Posted by pb4uski According to immediateannuities.com, if you put the $200,000 lump sun an IRA and bought a deferred payout annuity that starts paying benefits in 7 years at age 65 then you could choose to receive $1,506/month for life beginning at age 65 or $1,367/month with a guarantee that you or your heirs receive benefits that are at least equal to the $200,000 premium. Both beat the $1,350/month for life beginning at age 65 with no guaranteed return of the lump sum offered by your employer so I would favor the lump sum rolled into an IRA. IF you have little guaranteed income or are risk averse then you could buy an annuity with some or all of the lump sum... that would be a separate decision.

I'm actually drawing a non-COLAed pension (2k/month) from a previous employer so we've got a small bit of income coming from that. We were thinking we should take this lump sum and add out IRA's but wanted to get some input from others before pulling the trigger.