|
Lump Sum Pension or annuity
04-11-2019, 12:55 PM
|
#1
|
Dryer sheet aficionado
Join Date: Jan 2008
Location: Seattle
Posts: 26
|
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!
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
04-11-2019, 01:06 PM
|
#2
|
Thinks s/he gets paid by the post
Join Date: Aug 2012
Posts: 1,862
|
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.
__________________
FIRE Class of 2018 @ 61
Old men and women sit in the shade of trees they planted long ago
|
|
|
04-11-2019, 01:38 PM
|
#3
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2013
Location: Les Bois
Posts: 5,761
|
how is the lump sum being calculated?
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
|
|
|
04-11-2019, 01:44 PM
|
#4
|
Dryer sheet aficionado
Join Date: Jan 2008
Location: Seattle
Posts: 26
|
Quote:
Originally Posted by Big_Hitter
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.
|
|
|
04-11-2019, 01:47 PM
|
#5
|
Dryer sheet aficionado
Join Date: Jan 2008
Location: Seattle
Posts: 26
|
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
|
|
|
04-11-2019, 01:54 PM
|
#6
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,264
|
$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.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
04-11-2019, 01:56 PM
|
#7
|
Dryer sheet aficionado
Join Date: Jan 2008
Location: Seattle
Posts: 26
|
Quote:
Originally Posted by pb4uski
$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
|
|
|
04-11-2019, 02:00 PM
|
#8
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2013
Location: Les Bois
Posts: 5,761
|
Quote:
Originally Posted by pb4uski
$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)
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
|
|
|
04-11-2019, 02:18 PM
|
#9
|
Thinks s/he gets paid by the post
Join Date: Dec 2014
Location: St. Charles
Posts: 3,903
|
Quote:
Originally Posted by pb4uski
$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.
|
Quote:
Originally Posted by Big_Hitter
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).
__________________
If your not living on the edge, you're taking up too much space.
Never slow down, never grow old!
|
|
|
04-11-2019, 02:29 PM
|
#10
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2013
Location: Les Bois
Posts: 5,761
|
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
|
|
|
04-11-2019, 02:55 PM
|
#11
|
Thinks s/he gets paid by the post
Join Date: Sep 2006
Posts: 2,842
|
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.
|
|
|
04-11-2019, 03:10 PM
|
#12
|
Thinks s/he gets paid by the post
Join Date: Dec 2014
Location: St. Charles
Posts: 3,903
|
Quote:
Originally Posted by Big_Hitter
|
Quote:
Originally Posted by Running_Man
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.
__________________
If your not living on the edge, you're taking up too much space.
Never slow down, never grow old!
|
|
|
04-11-2019, 03:34 PM
|
#13
|
Full time employment: Posting here.
Join Date: Sep 2016
Location: Way up North
Posts: 561
|
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.
|
|
|
04-11-2019, 03:35 PM
|
#14
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2013
Location: Les Bois
Posts: 5,761
|
Quote:
Originally Posted by bada bing
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
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
|
|
|
04-11-2019, 10:08 PM
|
#15
|
Thinks s/he gets paid by the post
Join Date: Dec 2018
Location: DuPage County IL
Posts: 2,702
|
Quote:
Originally Posted by rando348
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.
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|