Originally Posted by Midpack
But as I get closer I started looking at it as a nest egg and SWD. Most of what I read suggests a 4%± withdrawal rate (not looking to debate the %) would provide good odds of a monthly income lasting more than 30 years. So a $123,500 lump sum at a 4% withdrawal rate would yield $411/month ($125,000 x .04 / 12 month/yr) at the outset. Assuming 3% COLA increase, it would be 28 years before the monthly amounts would be equal and 48 years before the total payout would tip in favor of the lump sum (I hope I don't live that long frankly). That suggests to me I'd have to be brain dead to not take the $901/month instead of the lump sum, over twice as much per month to start and guaranteed not to run out before I die. What am I missing?
The main question is: Do you want to pass anything to your heirs or spend it all yourself? If you don't want to pass anything to your heirs, in your case an annuitized payout such as a monthly pension can beat the pants off of the lump sum.
But on the other hand, if you don't need the money and you want to pass something to your heirs, taking the lump sum and investing it until the day you die might make more sense.
I'd also add that you don't say whether you are married or single, and if you're married, does the pension include survivor benefits? And if it does, is it 50%, 66 2/3%, 100% joint and survivor or something else?
For grins, I went to the BRK Direct site (from Berkshire Hathaway which is AAA-rated and A++ with A.M. Best) to see what the monthly annuity payments would be for a 61-year-old under various scenarios with a $123,500 investment:
* Male and no survivor benefit (born 1/1/1947): $726 per month
* Female and no survivor benefit (born 1/1/1947): $680 per month
* Married with 100% joint and survivor benefit (assuming both born 1/1/1947): $622 per month
Off the cuff, unless you are in poor health and have a terrible family history of longevity, taking the $901 monthly payments would seem a better idea -- IF you have confidence in the pension fund and the company backing it. There's something to be said for the bird in the hand rather than waiting for two in the bush.