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Younger wife,... lump sum or annuity??
Old 01-24-2011, 08:07 AM   #1
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Younger wife,... lump sum or annuity??

My wife is 12 years younger than me (I'm 54). I'm thinking of retiring in 2/3 years and am curious as to whether I should take a lump sum or annuity, given my wife's potential to outlive me by several years. At present i have a $530K 401K, and either $430K in lump sum retirement, or a $2,700 per month pension (straight life). I'm not sure how much this amount would be reduced when factoring in my wife.

I've always leaned towards a lump sum, but now I'm having second thoughts because of my wife's age.

Any thoughts??
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Old 01-24-2011, 08:49 AM   #2
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I'll take the younger wife.

Oh, sorry, I read the title and thought it was a multiple choice question.
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Old 01-24-2011, 09:46 AM   #3
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I'm 7 years younger than my husband who recently retired and had a choice of a lump sum or pension. On the pension he could choose (with my consent) to get a larger one with no survival option, or one with 50% survival or one with 100% survival.

We went for the lump sum. Personally I preferred us to have control of the money and to not have to worry about the company going under possibly many years from now. Yes their is the pension guarantee fund but it will only pay a survivor at 50% rate (even if DH elected the 100%) survival and you never know what will happen to that fund anyway.

All of these are options that your wife might have opinions on of course (I had to sign to consent to the lump sum) and your considerations might vary based upon your other assets.
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Old 01-24-2011, 09:57 AM   #4
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Good points, and thanks for responding. I agree that getting a lump sum eliminates the worry and concern over the long term viability of my employer (except for the health care aspect). Everyting seems pretty good at the moment, but with China, Mexico, gas prices, political instability, etc., you just never know what the future holds.
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Old 01-24-2011, 10:15 AM   #5
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Since I do not have a pension.... this is just my thoughts...


The reduction if you had a 100% survival option for her will be a LOT less.. (one of my sisters just went through this and she is 6 years younger... it cost a lot just for that)... if you think about it... it should be a lot less as your wife will receive payments for 12 more years if you both die at the same age...

But, you also need to think about providing for her when you are gone (the likely sceneario)... one of the things that I will be doing is taking SS at age 70 instead of earlier... this would give more to your wife than if you took it early (unless she makes more than you)...
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Old 01-24-2011, 11:41 AM   #6
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Does your wife understand investing ? If not I would go with the annuity . I've seen to many widows lose a large portion of their life savings do to inability to understand what a brokerage is doing .
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Old 01-24-2011, 11:46 AM   #7
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Take a look at this calculator, I found it to be helpful and saved it from a prior post about lump sums or payouts. You can play around with the numbers to get a close approximation for single/joint payouts, term lengths and beneficiary choices.

Immediate Annuities - Instant Annuity Quote Calculator.
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Old 01-25-2011, 04:01 AM   #8
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You need to provide more information to get any meaningful comments.

  1. What are your planned expenses in retirement (how much do you spend now and do you plan to spend if your FIRE).
  2. Do you and your DW qualify for SS
  3. Does your wife work and intend to keep working? Big salary, small salary, no salary.
  4. Do you have healthcare available? How much will it cost?
  5. Are you in debt? Is your house paid off
  6. Are you in good health... expect a long life?
  7. Any other major factors.
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Old 01-25-2011, 04:39 AM   #9
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A tough question many of us grapple with. I am taking a lump sum option because
a) I am very comfortable investing my own money,
b) I am not convinced my long ago Fortune 500 employer will be around for the duration of my retirement (yes, I know they won't actually hold it, but I have no control over who will),
c) mine is about half the size of yours and a less significant part of our net worth, so it's not as big a decision for us, and
d) the lump sum is almost exactly the same as it would cost for me to buy an annuity myself (as it should be with all companies IMO). ***

*** There are plenty of online annuity calculators, I looked at one (below) and $430K is low for a $2700/mo benefit. You should know exactly how your options stack up before making a decision IMO.

However, I am not making a recommendation nor do I recommend this particular annuity site, you should get professional help with your question, too large a sum to decide based on our input IMO.

Immediate Annuities - Instant Annuity Quote Calculator.
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Old 01-25-2011, 06:29 AM   #10
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Old 01-25-2011, 06:46 AM   #11
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$2700/mo versus $430K lump sum suggests a 7.5% annuity. Do you smoke 100 cigarettes a day or something? I'd take the annuity and leave the 401(k) to accumulate.

Part of the calculation will involve determining what % of your income you burn through with your manicures and tanning salon visits, and what % is down to DW's need for power tools and muscle cars. I'm definitely the cheaper-to-run half in our house, for example; if DW's spending was at the level of mine, I'd have retired last year.
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Old 01-25-2011, 06:48 AM   #12
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1. We spend $70K now and would need same in retirement (kids!!)
2. Wife and I both qualify for SS.
3. Wife works, small salary, will work another 8-10 years.
4. Health care covered (megacorp, Tricare at 60, VA)
5. Owe $30K on house, no additional significant debt.
6. History of blood clots, take blood thinner, blood pressure meds, cholesterol meds.
7. Receive $15K VA pension, will receive Army Reserve pension at age 60 ($9K per year).
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Old 01-25-2011, 07:02 AM   #13
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Hmmm. That changes things, because you are potentially going to be close to the limit of what your resources will generate.

Let's say your wife makes $20K after taxes, so with $15K pension you need another $35K/year to make your $70K. $2700/mo won't quite cover that after taxes. $430K wouldn't do so sustainably either, but there's a lot to be said for cutting back on your spending later rather than sooner (especially, if I can be blunt, if the blood problems are not likely to go away).
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Old 01-25-2011, 07:15 AM   #14
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Don't forget the $9K military retirement plus about $17K SS at 60. And, I'm thinking of working till July 1, 2013 so the lump sum pension should be around $500K by then and hopefully the 401K will grow substantially as well. Lastly, the mortgage will be gone by that date.
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Old 01-25-2011, 07:16 AM   #15
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Sorry.... what am I thinking? The 17K SS won't start until age 62!!
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Old 01-25-2011, 07:55 AM   #16
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For my pension, I took a single life annuity and used the difference between that and the joint annuity to buy additional life insurance. Personally, I would never take lump sum because I would fret forever about what the market is doing.
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Old 01-25-2011, 08:26 AM   #17
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Research the concept of pension maximization with life insurance. Sometimes it works, sometimes it doesn't. Depends on the specifics.
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Old 01-26-2011, 04:46 AM   #18
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I really liked that book from Otar. It placed bunch of very complex issues into a framework to simplify making certain decisions. You might consider reading his book. It would be a good educational resource for you.

Based on the information you provided (unless you think your expenses will drop quite a bit in a few years).... you appear to be in what Otar would call the red zone. He advises people in the red zone to buy annuities rather than attempting to fund income with a portfolio of stocks and bonds. A pension is like an annuity.

Just using the 4% guideline as sanity check... $1.75M would be needed to generate a $70k/year (with a COLA) for 30 years. [You might want to research the 4% rule if you are not familiar with it]. You have about 30% of that in a 401k plus a number of income receivables that can start at different ages (SS several pensions).

Do any of the pensions have COLAs (this is important to know)?

What would your payout if you waited till 60 years of age to ER?


You need to do more homework and build a full plan that includes your DW's retirement. Be realistic... do not plan on investment returns making up for big gaps. If investment returns somehow give you a big windfall... great... but plan on a conservative return (to be realistic). Create several plans/projections and compare them: retiring at 55, 60, 62 etc. Take your time, get the right information, and compare all of your options before you make a decision. If you are not sure how to work out the details, consider getting some professional help.


IMO - You seem to be in pretty decent financial shape and on track.... but you have fairly high expense needs compared to your current resources. I would be considering working another 5 years (and save a little more).
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Old 01-26-2011, 07:35 PM   #19
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Quote:
Originally Posted by chinaco View Post
Based on the information you provided (unless you think your expenses will drop quite a bit in a few years).... you appear to be in what Otar would call the red zone. He advises people in the red zone to buy annuities rather than attempting to fund income with a portfolio of stocks and bonds. A pension is like an annuity.

Just using the 4% guideline as sanity check... $1.75M would be needed to generate a $70k/year (with a COLA) for 30 years.
I'm sure I see that things are as dire as you are saying. In particular, I don't see why he was to generate all his income from his 401k and pension lump sum.

He has almost a million between them so let's say takes 4% which is $38.4

But - To get to $70k he has (or will have by 62):

VA pension $15k
Army reserve pension $9k
SS $17k

Those alone take him to just over $79k a year. Yes, if pensions are non-COLA that is certainly a factor but he says he needs $70k not $79k.

Factor in that he plans to work a couple of more years so the 401k and pension lump sum increase.

Sure he can't access all of that money before either 60 or 62, but his wife will be working for 8 to 10 years which presumably will bridge some (or all) of the gap, depending on her income.

None of this factors in her potential future SS.
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Old 01-27-2011, 04:36 AM   #20
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Originally Posted by Katsmeow View Post
I'm sure I see that things are as dire as you are saying. In particular, I don't see why he was to generate all his income from his 401k and pension lump sum.

...
I didn't use the word dire... you did.

But, I am financially conservative and consequently my opinions tend to be also.

The Otar and 4% rule comments were just some food for thought and pointing out some items to research.

IMO - Retirement planning should be conservative. Plus, part of the art of retirement planning is considering what might go wrong and developing some contingency plans. I would tend to err on the side of caution... but that's me.

Everyone has to make their own decisions (and live with the outcome).

The crux of my statement: Research it, learn about it, and develop a complete and solid plan before making a decision.
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