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monthly pension
Old 09-26-2010, 09:41 PM   #1
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monthly pension

Hello,

I am new to the forum and eligible to retire early from my company next year. The company offers a lump sum option or monthly annuity. My preference is the monthly annuity. I hear and read a lot about folks fretting over managing their portfolio or finding the right firm to manage it for them. Seems like most either do not have a monthly annuity option or they decide for the lump sum option. Question is, if you can live comfortably on the monthly annuity, why not ? I know about the inflation factor, but plan to use my 401K to hedge against it. Am I missing something here ? My wife is eligible for her monthly annuity in 3 years and again, I plan to take that option over a lump sum.
Also having issues trying to find a financial advisor that will provide a sanity check on my retirement figures. If I don't have money available for them to manage(no lump sum), they don't seem interested. How do you find someone to provide a thorough review of your retirement plan for a reasonable fee ? Thanks in advance for any suggestions and advice.
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Old 09-26-2010, 10:01 PM   #2
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Welcome to the forum thump.

I won't address your lump sum vs. monthly payout question but I will suggest you look here for a fee only financial advisor: Home Page - NAPFA - The National Association of Personal Financial Advisors
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Old 09-27-2010, 03:12 AM   #3
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Am I missing something here ?
The company I will get a pension from has been on shaky financial ground. So I will probably take the money and run as soon as I am old enough to qualify for the lump sum option.
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Old 09-27-2010, 03:41 AM   #4
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If this is outside your comfort zone, going to a fee only financial adviser is a good first move. Do not use someone who gets paid on commission or who works for an insurance company or bank. If all else fails, (i) try speaking with an accountant and (ii) find out what resources your company and/or the plan provider have to offer.

At the very least, you should be comparing what you can purchase in the way of annuities using the lump sum against the annuity offered by your company, asking what sort of annuity they are offering (inflation adjusted, survivor benefits etc), the tax issues and how solid the provider of the annuity is.

Your personal circumstances, risk tolerance and inclination to manage your investments will also be highly relevant. As an example, if you take the annuity you will not have anything to leave behind to your heirs (absent survivor benefits).

Personally, I would be very reluctant to rely on a non-COLA'd pension for the bulk of my retirement needs and even more so if I was also taking uninsured credit risk on a single provider.
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Old 09-27-2010, 07:43 AM   #5
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Good advice about compairing with commercially available annuities. Also check on (and compare when checking the commercial annuities) the spousal benefit. What if you kick next year?
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Old 09-27-2010, 06:08 PM   #6
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I just retired in July and had a choice of non-COLA annuity or partial lump sum with a partial annuity. My DH also has a choice of non-COLA annuity or lump sum. Our original thought was the same as yours to take our annuities and use our 401K money to hedge against inflation.

We went to see a fee only planner and he was able to run numbers for us that showed it would work if we did that, but we would have more money available to us if we took the lump sums because the annuities will continue to lose value and eventually be worth next to nothing with inflation. The decision is not reversable, so make sure you do all your research.
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Old 09-27-2010, 09:21 PM   #7
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My DH retired a few months ago and had the option of a lump sum or annuity. We chose the lump sum. Why?

1. There is always a risk with an annuity that the company will go under. Yes, the pension guaranty thing exists but the most it will pay was less than DH's monthly annuity. Also it will not pay a 100% survivor option only a 50%. We did not like either one of those things.

2. Annuity end either at the death of the person whose annuity it is (or death of the survivor if there is a survivor option). You have no possibility of leaving money to anyone else in the event of an early demise.

3. If you want to make any large purchase you can't with an annuity as you get only the payments rather than a lump sum that is yours to do with as you will.

4. We felt that if we ever wanted an annuity we could go buy one in whatever size we wanted (well, up to however much money we had) later on. OTOH, if we took the annuity we couldn't go change it in for a lump sum. It is possible at some point we might get an SPIA for some portion of the money (or not). But it would be our choice.
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Old 09-27-2010, 09:24 PM   #8
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thanks for all the comments... especially the NAPFA website. Looks like a great resource

thanks again !
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Old 09-27-2010, 09:28 PM   #9
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Quote:
Originally Posted by thump View Post
Hello,

I am new to the forum and eligible to retire early from my company next year. The company offers a lump sum option or monthly annuity. My preference is the monthly annuity. I hear and read a lot about folks fretting over managing their portfolio or finding the right firm to manage it for them. Seems like most either do not have a monthly annuity option or they decide for the lump sum option. Question is, if you can live comfortably on the monthly annuity, why not ? I know about the inflation factor, but plan to use my 401K to hedge against it. Am I missing something here ? My wife is eligible for her monthly annuity in 3 years and again, I plan to take that option over a lump sum.
Also having issues trying to find a financial advisor that will provide a sanity check on my retirement figures. If I don't have money available for them to manage(no lump sum), they don't seem interested. How do you find someone to provide a thorough review of your retirement plan for a reasonable fee ? Thanks in advance for any suggestions and advice.
What are the numbers?
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Old 09-27-2010, 10:05 PM   #10
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Is your lump sum calculation based on the PBGC rate? Mine is and our 2011 payout just went up by 10%! The October PBGC rate fell from 2.25% to 1.75%. I can't imagine it can get much lower.

My understanding is that with the current abnormally low interest rates it's a terrible time to annuitize and a great time to lump-summize (to coin a mangled phrase). You could take the lump sum now and get an annuity in a couple of years at a hopefully better rate.
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Old 09-27-2010, 10:08 PM   #11
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Since I was in my thirties during most of the 70s inflation, and raising children and paying attention to the business world, I understand inflation maybe more deeply in my bones than some younger members. In the early 80s I sold some annuities that you would not believe, the payouts were so huge.

I am certainly not predicting inflation, but the background political and economic conditions are such that anything could happen, and many have no emotional level understanding of what even a moderately high inflation rate can do to a fixed pension or annuity.

I would take the money, and look for opportunities to buy COLA annuities down the road, or if you are more a gambler, for a fixed payout annuity when the payouts might become very much better and there seems to be some political spine around. Although for this last there might be a long wait.

A strong strategy might be to find some way to get to age 70 for at least one of you and take enhanced social security then.

Ha
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Old 09-29-2010, 02:43 PM   #12
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We need some numbers to see if your annuity is worth it. Who is the administrator, how much is it worth, what is the lump sum option.

If you want to find out what you could buy for yourself with a lump sum
TIAA-CREF is a good place to start. They specialize in annuities and would be happy to talk to you about your options if you came bearing a lump sum. They are obviously biased, but if you decide to buy an annuity they offer some of the best.
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