|
Opinions on Pension Options
11-28-2014, 07:59 PM
|
#1
|
Recycles dryer sheets
Join Date: Mar 2011
Posts: 217
|
Opinions on Pension Options
Unless early out package is presented, I plan to hang it up 01/2016 when I turn 62.
We have multiple pension options of which I am interested in several.
At 62:
Single Life Annuity 4955/mo
Joint & Survivor 4271/mo
Lump Sum of 544,170 plus 1,562/mo Joint and Survivor
Would you take the SLA and purchase a 500,000 20 yr term life insurance policy for about 300/mo and come out about 350/mo to the good? Lump sum is tempting, but I am leaning toward the SLA option over the J & S option.
We have ample assets otherwise (>1.5mm), wife gets 1800/mo teachers ret. in a few years and I can begin SS payments at any time after 01/2016.
As always, your opinions and advice is greatly appreciated.
|
|
|
|
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!
|
11-28-2014, 08:06 PM
|
#2
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,201
|
You can use immediateannuities.com to evaluate how the options compare to current annuity pricing.
__________________
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
|
|
|
11-28-2014, 08:39 PM
|
#3
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Given your level of assets I don't see a need for "term life insurance".
I'm also interested why a couple would go with a single life over a joint life
policy.
Assuming your wife is the same age as you and that the $544k buys the difference between your options 2) and 3) it is worth $2709/month. This is a payout rate of 6% and an interest rate of about 3.7%....these are better than you'd get from insurance companies today, but still not good. With interest rates low it's a good time to take a buy out so I'd be tempted to take option 3), the lump sum and smaller joint annuity and just invest the lump sum.
Of course your need for income and risk tolerance also play into this and you need to be comfortable the sources of your income. With Option 3 will you have enough from pensions and SS to sleep well at night?
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
|
|
|
11-29-2014, 06:13 AM
|
#4
|
Thinks s/he gets paid by the post
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
|
If you take the 544K + the $1,562, it is the same as taking the Joint & Survivor @ 4271/mo for 16.73 years with a 0% return. You will be almost 79 years old when it is gone. If you get a 5.9% return, you will never use the principle. Anything between 0 and 5.9% will make the 16.73 years longer.
How healthy are you/wife? How much older/younger are you than your wife? Can you take the $544K and use it wisely over 16+ years? Or will you blow it? How will you invest it if you do a self managed ?
How much do you actually need to live? Or where will the money come from if you blow the $544K?
SS will kick in soon, and your other assets might cover some expenses.
I would take the $544K and invest it in a long term asset that returns 3%+ and take my chances. But it has to be a set it and forget it venture.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
|
|
|
11-29-2014, 06:34 AM
|
#5
|
Thinks s/he gets paid by the post
Join Date: Nov 2012
Location: Madeira Beach Fl
Posts: 1,403
|
Lump sum.
__________________
_______________________________________________
"A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do" --Bob Dylan.
|
|
|
11-29-2014, 06:44 AM
|
#6
|
Moderator
Join Date: Apr 2012
Location: San Diego
Posts: 14,140
|
Does your pension have COLA?
Does your wife's?
__________________
Retired June 2014. No longer an enginerd - now I'm just a nerd.
micro pensions 6%, rental income 20%
|
|
|
11-29-2014, 06:49 AM
|
#7
|
Moderator Emeritus
Join Date: Sep 2007
Posts: 17,773
|
Totally option 3.
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
|
|
|
11-29-2014, 08:04 AM
|
#8
|
Recycles dryer sheets
Join Date: Mar 2011
Posts: 217
|
Pension not COLA'd. Wife's is. We are in very good health. She is 57.
|
|
|
11-29-2014, 09:07 AM
|
#9
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by sheldon cornped
Pension not COLA'd. Wife's is. We are in very good health. She is 57.
|
Using those numbers in "Immdeiateannuities" you'd get a monthly joint income of $2439 for $544k, so the $2709 implied by the difference between options 2) and 3) is better than the current market and the interest rate is 3.8%.
Your decision comes down to what makes you most comfortable and how the various annuity options fit into your plans and other investments. If you take option 2) you could be more aggressive with the rest of your portfolio. If you take the lump sum will you be able to get better than 3.8% return at the same risk? Is 3.8% guaranteed return from the pension over 21 years (assuming you live your predicted lifespan) ok with you?
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
|
|
|
11-30-2014, 01:24 AM
|
#10
|
Recycles dryer sheets
Join Date: Nov 2014
Location: Texas
Posts: 164
|
At 60 for me.
Single Life Annuity 3740/mo
Joint & Survivor 3100mo
Lump Sum $675,000
I have no good choice I am taking the lump sum. I am 53 and it grow 24-30k year until 60. From 450 to 670
I have no cola, wife teacher has cola with her pension
Sent from my iPhone using Early Retirement Forum
|
|
|
11-30-2014, 05:44 AM
|
#11
|
Full time employment: Posting here.
Join Date: May 2007
Posts: 880
|
my opinion...
If you can manage money, then take the lump sum. If not, then choose J&S option.
__________________
"It is better to have a permanent income than to be fascinating". Oscar Wilde
|
|
|
11-30-2014, 07:58 AM
|
#12
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by Terryjm51
At 60 for me.
Single Life Annuity 3740/mo
Joint & Survivor 3100mo
Lump Sum $675,000
I have no good choice I am taking the lump sum. I am 53 and it grow 24-30k year until 60. From 450 to 670
I have no cola, wife teacher has cola with her pension
Sent from my iPhone using Early Retirement Forum
|
Well the the single life has a interest rate of 3.8%, just like many of these pensions, and without a COLA inflation could really reduce it's value further.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
|
|
|
11-30-2014, 12:54 PM
|
#13
|
Full time employment: Posting here.
Join Date: May 2011
Posts: 873
|
Lump sum.
|
|
|
11-30-2014, 07:07 PM
|
#14
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,201
|
The difference between your $4,955 SLA benefit and the $4,271 J&S benefit would be $684 a month so if you can buy life insurance coverage that will provide a death benefit sufficient to buy an annuity that pays a benefit of $4,271 for the rest of her life for less than $684 a month then it might be a good play.
According to immediateannuities.com the $500k of life insurance benefits your are considering would only buy a monthly annuity benefit of $2,450 (assuming she is 62 as well), so to have insurance sufficient to buy an annuity with a $4,271 benefit for DW you would need to have ~$870k of insurance.
If you could create a ladder of different term life policies to reduce the cost below $684/month and still provide a benefit sufficient to provide $4,271/month of replacement income should you pass before her then it would be a viable strategy.
See Creating a Life Insurance Ladder
__________________
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
|
|
|
11-30-2014, 07:21 PM
|
#15
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by pb4uski
The difference between your $4,955 SLA benefit and the $4,271 J&S benefit would be $684 a month so if you can buy life insurance coverage that will provide a death benefit sufficient to buy an annuity that pays a benefit of $4,271 for the rest of her life for less than $684 a month then it might be a good play.
According to immediateannuities.com the $500k of life insurance benefits your are considering would only buy a monthly annuity benefit of $2,450 (assuming she is 62 as well), so to have insurance sufficient to buy an annuity with a $4,271 benefit for DW you would need to have ~$870k of insurance.
If you could create a ladder of different term life policies to reduce the cost below $684/month and still provide a benefit sufficient to provide $4,271/month of replacement income should you pass before her then it would be a viable strategy.
See Creating a Life Insurance Ladder
|
The difficulty I have with both of the higher annuity options is locking up so much money forever at a 3.8% interest rate. I like annuities, but unless you have access to something significantly better than today's market they are hard to justify. Also the lump sum payment will be inflated by today's low interest rates, so now is a good time to take the lump sum.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
|
|
|
11-30-2014, 07:43 PM
|
#16
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,201
|
How are you getting 3.8%? It's a life contingent annuity, not a period certain annuity.
__________________
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
|
|
|
11-30-2014, 08:49 PM
|
#17
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by pb4uski
How are you getting 3.8%? It's a life contingent annuity, not a period certain annuity.
|
Just assuming longevity from mortality tables....so I should have said "locking in 3.8% if both parties live life spans predicted by the life expectancy tables", obviously the performance of the annuity will depend on the age when they expire.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
|
|
|
12-01-2014, 07:48 AM
|
#18
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2013
Location: Texas
Posts: 10,836
|
Lump sum
|
|
|
12-01-2014, 08:33 AM
|
#19
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,201
|
Quote:
Originally Posted by nun
Just assuming longevity from mortality tables....so I should have said "locking in 3.8% if both parties live life spans predicted by the life expectancy tables", obviously the performance of the annuity will depend on the age when they expire.
|
You could probably say that about any life contingent annuity - the implicit interest rate is low. 3.8% would be ~100 bps better than the 30 year treasury.
__________________
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
|
|
|
12-01-2014, 08:51 AM
|
#20
|
Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
|
Quote:
Originally Posted by pb4uski
You could probably say that about any life contingent annuity - the implicit interest rate is low. 3.8% would be ~100 bps better than the 30 year treasury.
|
Yes. I imagine the lump sum is calculated using the IRS segmented rates.
Minimum Present Value Segment Rates
Low "interest rates" make it a good time to take the lump sum rather than the income.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
|
|
|
|
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
|
|
|