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lump sum or monthly payment
Old 03-25-2007, 03:57 PM   #1
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lump sum or monthly payment

I am 56 and retire in a few day's, one of my pension choices (annuity) is either 25,000 cash or a monthly check for $ 153.00 dollars for life. Which would you take?
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Re: lump sum or monthly payment
Old 03-25-2007, 04:01 PM   #2
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Re: lump sum or monthly payment

It all depends on your personal situation.

As for what I would do, I think that in my case I would take the $153/month. It seems to me that that is over 7.3% per year, and that's not a bad return.
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Re: lump sum or monthly payment
Old 03-25-2007, 04:08 PM   #3
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Re: lump sum or monthly payment

I was leaning that way, i have  401 money in more assorted funds and another pension of 2 grand so  a monthly payment seems good as long as it will be there in 20 years, i know nothing is guarentied (sp)
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Re: lump sum or monthly payment
Old 03-25-2007, 04:31 PM   #4
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Re: lump sum or monthly payment

Id prefer the cash and throw it in an index fund. Chances are you will do better than 7 percent.
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Re: lump sum or monthly payment
Old 03-25-2007, 04:42 PM   #5
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Re: lump sum or monthly payment

First of all, the return is not 7.3%. Remember, the income stream stops at your death. If you die at 86, the return is 6.2%. At 96, the return is 6.9%.

And I'm guessing these are nominal returns (i.e. no inflation adjustments to the annuity).
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Re: lump sum or monthly payment
Old 03-25-2007, 05:08 PM   #6
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Re: lump sum or monthly payment

Quote:
Originally Posted by valve monkey
I am 56 and retire in a few day's, one of my pension choices (annuity) is either 25,000 cash or a monthly check for $ 153.00 dollars for life. Which would you take?
The value answer depends on your birthdate, gender, state of residence, when you start receiving the money, if it is a straight $153/mo for life or CPI adjusted, etc. However if you are a male with a birthdate of 25 Mar 1951, living in AL, getting your first payment on 1 May 2007 and it is a level $153/mo for life; Vanguard would charge you $26,580.34 to get that income stream. So given that I described you above then if you take the $153/mo for life, you are getting a better deal on the annuity then you could get from Vanguard.
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Old 03-25-2007, 05:26 PM   #7
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Re: lump sum or monthly payment

Quote:
Originally Posted by FIRE'd@51
First of all, the return is not 7.3%. Remember, the income stream stops at your death. If you die at 86, the return is 6.2%. At 96, the return is 6.9%.
And if you die next month the return is (99.99)%

I'd be surprised if this decision will impact your retirement too much. $25K vs. $1,836 / year for life? I think I'd find the hassle of going to the bank every month to cash a $153 check would outweigh whatever piece of mind $1,800 a year buys me. Unless I was already planning to buy an annuity, and discovered that the deal I was getting from my pension was better than what I could buy elsewhere, I think I'd just take the cash and avoid one more needless complication in my life.
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Old 03-25-2007, 05:42 PM   #8
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Re: lump sum or monthly payment

Quote:
Originally Posted by 3 Yrs to Go
And if you die next month the return is (99.99)%

I'd be surprised if this decision will impact your retirement too much. $25K vs. $1,836 / year for life? I think I'd find the hassle of going to the bank every month to cash a $153 check would outweigh whatever piece of mind $1,800 a year buys me.
Only luddites would go the bank every month. I get a $100 a month and it is direct deposited into my Emigrant Bank Account Automatically each month. I have an automatic entry into Quicken that records the transaction. I look at the Balance once in awhile!
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Re: lump sum or monthly payment
Old 03-25-2007, 06:32 PM   #9
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Re: lump sum or monthly payment

Quote:
Only luddites would ...
what's wrong with luddites? besides, a true luddite probably wouldn't have a bank account, and if so, probably wouldn't want to walk there every month.
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Old 03-25-2007, 09:23 PM   #10
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Re: lump sum or monthly payment

I think it would be better to take the lump sum if the pension was not adjusted for inflation. With inflation at 3% wont' the monthly pension be losing that much purchasing power? Therefore, to make up for the difference you would have to reinvest 800 of the 1800 to keep up with inflation. Can some one clarify?

Bob
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Old 03-25-2007, 10:01 PM   #11
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Re: lump sum or monthly payment

I'd take the lump sum!

I'd rather have it in my hands, to invest as I see fit than have the money parceled out to me, over the rest of my life. What happens, if you meet your maker, in 5 years?
Who, gets the balance
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Old 03-25-2007, 10:23 PM   #12
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Re: lump sum or monthly payment

I vote for taking the lump sum too. The current monthly payment will buy a decent dinner for 4 with a middling bottle of wine. Assuming it's not indexed, in 10 years it will buy burgers for 6.

Invest the lump sum.
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Old 03-26-2007, 04:27 PM   #13
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Re: lump sum or monthly payment

I just faced this same situation. In my case, I had a choice of a lump sum of $85,746 -or- a non-COLA'd monthly pension for life of $463.64. According to the presented paperwork, "the lump sum cash settlement has the same relative value as the life income basis. To compare the lump sum basis to the life income basis, an interest rate of 4.73% was used. The relative value of distributions ultimately made will depend on actual longevity."

I elected the lump sum distribution.
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Re: lump sum or monthly payment
Old 03-26-2007, 04:28 PM   #14
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Re: lump sum or monthly payment

Quote:
Originally Posted by Sundance Kid
I'd take the lump sum!

I'd rather have it in my hands, to invest as I see fit than have the money parceled out to me, over the rest of my life. What happens, if you meet your maker, in 5 years?
Who, gets the balance my wife and her new boyfriend
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Old 03-26-2007, 04:31 PM   #15
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Re: lump sum or monthly payment

thanks for the replies, what is a luddite?
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Old 03-26-2007, 04:56 PM   #16
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Re: lump sum or monthly payment

Quote:
what is a luddite?
... one who thinks progress has only negative impacts and hence disdains technology.
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Old 03-26-2007, 05:16 PM   #17
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Re: lump sum or monthly payment

Quote:
Originally Posted by d
... one who thinks progress has only negative impacts and hence disdains technology.
More specifically an early 19th century workers movement in England that opposed the industrial revolution and destroyed factories and machinery. By extension, as explained above, anyone opposed to new technology. Actually smashing machinery is now considered optional.

And I am very glad someone actually asked a question on this forum that I could answer. Six years of schooling finally pays off.
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Old 03-26-2007, 06:55 PM   #18
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Re: lump sum or monthly payment

Here's a fun and instructional calculator that you can use to figure out, given an interest rate and a lifespan, what an annuity is worth as a lump sum:

http://www.investopedia.com/calculator/AnnuityPV.aspx

So if I plug in that your lifespan is 30 years and the prevailing interest rate is 6.2% then I calculate that the lump sum of the income stream is $24,740.47

Use your own numbers and make your own decision.
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Old 03-26-2007, 07:01 PM   #19
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Re: lump sum or monthly payment

Quote:
Originally Posted by valve monkey
thanks for the replies, what is a luddite?
The Unibomber
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Old 03-26-2007, 07:04 PM   #20
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Re: lump sum or monthly payment

Everything that you ever wanted to know about Luddites, and more !


http://en.wikipedia.org/wiki/Luddite
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