WR calculation for Pension
Been puzzled for awhile with a spreadsheet that I use to look at retirement options and possible WRs. I can either take pension as annuity or as lump sum. When I compare the WR for the two options, the annuity always looks better (looking solely at initial WR).
Did some quick math taking pension amount and dividing it into the lump sum, this gives me a rate of 6.5%, which probably explains why my WR looks better with the pension option.
Does this just show the shared risk that the annuity assumes, ie - a higher WR is achievable for them since the risk is spread amongst so many people? If we take the lump sum and we don't have a pool of individuals to spread the risk across, then we have to use a lower WR to be safe?
In other words, the pension can "pay out" 6.5% safely, while an individual must be at or under 4%.
I realize that taking the lump means hoping that the company will stay solvent etc.