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SPIA - CD Ladders vs Lump Sum Pension
Old 09-21-2013, 08:57 AM   #1
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SPIA - CD Ladders vs Lump Sum Pension

I am new to this forum. I am 49 years old and recently left MegaCorp after 16 years of service. I was fortunate in that the received a substantial bonus payment (40% of my existing amount) to my pension for leaving. This had to with some sort of tax rule and was tied to the current interest rate environment where lower interest rates meant a higher bonus payment. Curious to know if anyone has run across this before?

Next, I looked at the total amount in my pension and then looked at what their offer was as a lifetime payment. They offered both an immediate payment as well as a deferred payment starting when I turned 55.

I don't need the money now and am retiring at 55, so I did consider the deferred amount as a lifetime monthly payment which included joint survivability when I turn 55.

However, in looking at the numbers on immediateannuity.com, the quotes I was seeing for both immediate and deferred annuities were 20% higher than what was being offered by my company.

I decided that I could set up either a SPIA or CD ladder at 55 with 72T payments from my IRA and wind up in better shape than the company pension offer. I will also be consolidating 2 houses into 1 and will take the equity from my primary residence and use that in either a SPIA or CD ladder. I liked having the flexibility in deciding how much of my future value pension could be used.

I hope all of that made sense. My second question is, has anyone else turned down a pre-55 immediate and deferred pension offer in lieu of a self directed SPIA / CD ladder strategy?

One of the reasons I left MegaCorp was because of the 40% bonus payment by the way.

I'm sure many people have talked about this before, looking for some feedback.

Thanks!
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Old 09-21-2013, 10:28 AM   #2
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In comparing the numbers, are you sure that you are comparing your pension benefit to a joint life annuity starting at age 55 but purchased at age 49 and deferred for 6 years?

The reason that I ask is the $100 today compounded for 6 years at 3% ~ $120 so the 20% difference that you are noting may be due to growth of your pension balance between now and when you turn 55.
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Old 09-21-2013, 11:21 AM   #3
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good question, yes, I compared my pension benefit at starting at 55 with a deferred annuity purchased at 49 and deferred for 6 years.
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Old 09-21-2013, 02:45 PM   #4
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So what are you alternatives at this point? Start taking monthly payments now, take a lump sum now and take monthly payments commencing at age 55?
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