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Lump Sum Pension or annuity
Old 04-11-2019, 12:55 PM   #1
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Lump Sum Pension or annuity

Hi all.

I'm 40 years old. I have an old pension at a health insurance company that's present value is 10K. At age 65 they will provide me with a monthly payment amount of $300 per month with no cost of living adjustments. This pension is at an health insurance Premera Blue Cross based in Washington State. I can't start to draw until 65 so that's 25 years away and I'm not very optimistic that this company will even be around in 25 years with all the possible changes to our health care system.

Any advice? Should I go ahead and roll it over into a IRA? $300 a month in the future isn't that much anyway. Thanks in advance!
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Old 04-11-2019, 01:06 PM   #2
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We had this option about 11 years ago. We rolled it over to an IRA. I'd do it again. If you don't need it for 20+ years, chances are it will grow, grow, grow.
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Old 04-11-2019, 01:38 PM   #3
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how is the lump sum being calculated?
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Old 04-11-2019, 01:44 PM   #4
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how is the lump sum being calculated?



Honestly, I'm not 100% sure. I worked there for 5 years and they put in a percentage of my pay.
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Old 04-11-2019, 01:47 PM   #5
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I posted this same question over at bogleheads. https://www.bogleheads.org/forum/vie...p?f=1&t=278537


I'm going to go ahead and roll it over to Vanguard. Thanks everyone, I love this forum
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Old 04-11-2019, 01:54 PM   #6
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$300/month at 65 is actually pretty attractive given the $10,000 lump sum today.

According to immediateannuities.com the payout rate on a 25 year deferred annuity for a 40 yo male in WA would be 18%... and your $300/month equates to a 36% payout rate. However, $300/month at a modest 2% inflation would be worth $182 today in 25 years.

Since the amount is relatively modest and you have a long time horizon to let that $10,000 grow, I would roll the lump sum into an IRA... KISS.
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Old 04-11-2019, 01:56 PM   #7
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$300/month at 65 is actually pretty attractive given the $10,000 lump sum today.

According to immediateannuities.com the payout rate on a 25 year deferred annuity for a 40 yo male in WA would be 18%... and your $300/month equates to a 36% payout rate. However, $300/month at a modest 2% inflation would be worth $182 today in 25 years.

Since the amount is relatively modest and you have a long time horizon to let that $10,000 grow, I would roll the lump sum into an IRA... KISS.
Excellent point. KISS
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Old 04-11-2019, 02:00 PM   #8
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$300/month at 65 is actually pretty attractive given the $10,000 lump sum today.

.
yup, like almost twice as attractive

my guess is that this is a cpb, so he's guaranteed interest on the 10K at some index rate. The annuity may be backed into by projecting the 10K at the index rate proxy then converting to an annuity using the index rate proxy and irs mortality. Who knows.....if the cpb is guaranteeing a good rate, the only reason to move it would be the kiss issue (IMO)
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Old 04-11-2019, 02:18 PM   #9
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Originally Posted by pb4uski View Post
$300/month at 65 is actually pretty attractive given the $10,000 lump sum today.

According to immediateannuities.com the payout rate on a 25 year deferred annuity for a 40 yo male in WA would be 18%... and your $300/month equates to a 36% payout rate. However, $300/month at a modest 2% inflation would be worth $182 today in 25 years.

Since the amount is relatively modest and you have a long time horizon to let that $10,000 grow, I would roll the lump sum into an IRA... KISS.
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yup, like almost twice as attractive

my guess is that this is a cpb, so he's guaranteed interest on the 10K at some index rate. The annuity may be backed into by projecting the 10K at the index rate proxy then converting to an annuity using the index rate proxy and irs mortality. Who knows.....if the cpb is guaranteeing a good rate, the only reason to move it would be the kiss issue (IMO)
Just for kicks I looked at $10k, growing at 7%/yr for 25 years ($54,274), then looked at an immediate annuity, for a male in WA. The answer was $304. So, I am guessing they are using a 7% ROR.

I'm in the KISS camp. I would take the $10k, put it in a total market fund, and leave it there for 25 years. Odds are you can beat 7% (over a 25 year period).
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Old 04-11-2019, 02:29 PM   #10
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Odds are you can beat 7% (over a 25 year period).
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Old 04-11-2019, 02:55 PM   #11
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This is equivalent to getting a 25 year zero coupon bond at 7 percent for a company rated A-. This would be an outstanding investment in your portfolio's fixed component. Very few people have the ability to achieve such returns and I would jump on it.
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Old 04-11-2019, 03:10 PM   #12
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This is equivalent to getting a 25 year zero coupon bond at 7 percent for a company rated A-. This would be an outstanding investment in your portfolio's fixed component. Very few people have the ability to achieve such returns and I would jump on it.
OK. I may have jumped the gun saying odds are he could beat 7% (total market). But it is a relatively small amount of money, and I would take the risk.

On the other hand, if it were $100k (and $3k/month), I might take the approach suggested by Runningman and treat it like a REALLY good bond.
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Old 04-11-2019, 03:34 PM   #13
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A lot of cash balance plans were grandfathered in at very good guaranteed interest rates until a few years ago. My current cash balance plan is guaranteed
the greater of 30 year treasury rate or 5% with no principal risk. The offered annuity terms increase by an additional 2.5% per year due to mortality credits. There is nothing available on the current market that matches those terms. I'll keep my cash balance plan until forced to choose lump or annuity at age 70. It functions as part of my bond allocation in the interim.
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Old 04-11-2019, 03:35 PM   #14
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My current cash balance plan is guaranteed
the greater of 30 year treasury rate or 5% with no principal risk.
that's what I'm talking about
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Old 04-11-2019, 10:08 PM   #15
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Hi all.

I'm 40 years old. I have an old pension at a health insurance company that's present value is 10K. At age 65 they will provide me with a monthly payment amount of $300 per month with no cost of living adjustments. This pension is at an health insurance Premera Blue Cross based in Washington State. I can't start to draw until 65 so that's 25 years away and I'm not very optimistic that this company will even be around in 25 years with all the possible changes to our health care system.

Any advice? Should I go ahead and roll it over into a IRA? $300 a month in the future isn't that much anyway. Thanks in advance!
does it die when you do? if so, roll it.
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