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Lump Sum Offer
Old 09-20-2014, 01:28 PM   #1
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Lump Sum Offer

A previous employer has announced they will be offering a lump sum option shortly, in lieu of the established pension plan. Details regarding the dollar amounts are in the mail. I do have the estimate for the established plan, so I'll have something to compare it to- as well as comparable annuity calculations.

What other considerations should I be concerned with? (other than how the offer compares to the existing plan details)

Thanks, GiGi

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Old 09-20-2014, 02:26 PM   #2
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There have been many threads on this topic in the past few years on this board. You may want to search for those using the advanced search feature with the words "lump sum" in the titles. Lots of related threads.

I had a similar offer a few years ago and took it. The monthly pension would have paid out more (if I lived long enough) but I was worried about the companies long term financial viability. I took it and rolled it into an IRA.

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Old 09-20-2014, 02:49 PM   #3
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As mentioned above, company financial viability.... and how well funded the pension plan is...

Other than that I think it is a pretty straight what is worth more to me question....
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Old 09-20-2014, 06:18 PM   #4
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Originally Posted by Texas Proud View Post
As mentioned above, company financial viability.... and how well funded the pension plan is...
I took the lump sum as my company was being sold.

The new company ended up with a less-than fully funded pension and ended up discontinuing the pension and paid out lump sums less than original value.

So glad I took the money and ran!
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Old 09-20-2014, 07:19 PM   #5
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Going against the prevailing wisdom here I declined a lump sum offer when it was offered to me at age 52 (in exchange for a pension I will receive at age 65). The offer was about 30% below the equivalent annuity value of the pension and I was unwilling to take that hit. As the pension is non-COLA'd, should inflation rise dramatically over the next decade I may have cause to regret that choice.

It's only fair to point out that I was willing to take that gamble as this pension represents a fairly small fraction of my net worth (3-5%). If my retirement critically depended on it I may very well have taken the more conservative choice and accepted the lump sum.
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Old 09-20-2014, 08:12 PM   #6
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Sometimes having some guaranteed income late in life / annuitized income for a best case longevity scenario is a good idea.

That monthly pension check along with SS check is a good way to do so without "buying" an annuity outright.

It may look good 25 years from now especially if we were to experience a japan like decades long stock market malaise. For the past 6 years, I keep hearing that were about to hit escape velocity in the economy - at some point if we don't... Then equity prices reset etc. Low probability but since it's a tiny portion of your portfolio it may be wise to think differently.

Eg... ~75k lump sum now being offered or 1100 non cola dollars per month at age 65 ( 18 years from now). While the lump sum looks ok, I like the pension option as a "cheap" insurance policy If pension is well funded .

The rest of the portfolio can take care of things if inflation spikes ...

Eggs in different baskets is my general idea here.

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Old 09-20-2014, 10:03 PM   #7
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I have two very small pensions. One was available for lump sum - but the value is so much less than the annuity it will pay... The other doesn't have the lump sum option. Neither are cola'd. I chose to keep them in pension form and will "turn on" the spigot at age 55 - in 2 years.
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Old 09-21-2014, 06:56 AM   #8
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Many excellent posts on the topic in this forum. Also take a look at the Boglehead forum. Here's a place to start
Bogleheads • View topic - 10 Reasons to take your pension annuity over a lump sum

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