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Which DB Pension Option would you choose and Why?
Old 08-29-2013, 07:21 PM   #1
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Which DB Pension Option would you choose and Why?

Here are the Pension #'s I pulled from my MegaCorp projected income on our benefits website. This is a non-COLA'd pension with multiple options that are too numerous to mention here. I will be 60 in 01/2014. The annuity increases at 4% for each yr. thereafter.

Option 1
Single life annuity $4470/mo
100% pop-up 3862/mo (I would choose this since wife would
receive this amount should I pass 1st
and it would pop-up to the $4470
should she predecease me)
Option 2
Lump Sum split option $528,085 plus $1185/mo Joint&/Survivor

My question to you is which option would you select and why? We have investments/cash just over $1MM. DW gets teachers ret. in 4 years of about 1850/mo. SS at 62 for me would be about 2000/mo. I would be inclined to choose the annuity w/ pop-up. Do you think I could do better investing the lump long term while getting 1185 annuity with it? Interested to hear how you seasoned, sound judgement experts would weigh in.

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Old 08-31-2013, 01:00 AM   #2
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Of just those two I would choose option 1. You might want to instead consider the full single life annuity without the pop-up option if you could find life insurance at a better rate than the roughly 600 a month the pop-up option would cost you. What about SS for your DW the retiring teacher? I am thinking perhaps not so that she would definitely need either the pop-up option or some life insurance to cover it. BTW, congratulations you seem to be in great shape for early retirement unless your expenses are too high.

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Old 08-31-2013, 05:41 AM   #3
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Of just those two I would choose option 1
You seem to have a large enough nest egg. Other issues would be how much you spend, does the pension have a COLA? does the wife also get SS?
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Old 08-31-2013, 08:56 AM   #4
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It depends on your expenses imho and if you want to leave $$ in an estate and if each of you would receive any of the other's SS or teacher's retirement.

The pop-up that comes with the lump sum is a nice little benefit.

I don't think you could go wrong with either option.
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Old 08-31-2013, 10:07 AM   #5
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Option 2 is more flexible and diversified, with similar income potential coming from pension and portfolio. If some part of it is in taxable accounts, it could be more tax efficient option. Option 1 is more predictable, because of the large component of pension income. If this were my situation, my questions would be how easily would my surviving spouse deal with each and does either option have a substantially greater risk of running out of money.
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